President’s Budget Plan Raises Concern
Written by Marlo .
The Risk & Insurance Management Society (RIMS) issued a statement yesterday questioning and criticizing certain aspects of President Obama’s proposed budget.
Two proposed measures in the budget will directly affect the insurance industry according to RIMS. In addition, RIMS claims the two measures conflict conceptually with each other.
The first budget proposal reduces by $250 million the governments commitment to terrorism insurance. Scott Clark, RIMS secretary and director of RIMS External Affairs Committee stated, “TRIA (Terrorism Risk Insurance Act) and the federal government’s commitment to act as the ultimate backstop for terrorism insurance served to stabilize the market for policy holders,” cutting the government’s commitment will create instability in the terrorism insurance market, according to Clark.
The second source of contention is a bit more complex. Insurers often buy insurance on their insurance–this is called reinsurance. The premiums paid by insurers for reinsurance are tax deductible (like your business insurance premiums). But, insurers in the U.S. often “buy” reinsurance overseas from their own affiliates. Congress has sought to eliminate the deduction for such transactions. The President’s budget adapts this provision as a revenue enhancement measure. However, RIMS contends this would inhibit insurers from diversifying their risk overseas.
Finally, the two proposals are seemingly at odds because on one hand the government wants to eliminate the role of government in an insurance market, but seeks to inhibit the free market in the other. Or, at least that is the position of RIMS.
President’s Budget Plan Raises Concern originally appeared on About.com Business Insurance on Wednesday, February 3rd, 2010 at 11:34:57.