From the November 21-28, 2011 issue of National Underwriter Property & Casualty • Subscribe!

Pending Bill Could Raise Rates

Legislation would place significant restrictions on domestic insurers that cede reinsurance to their foreign affiliates

Terry Fleming, director of the Division of Risk Management, Montgomery County, Md., and immediate past president of the Risk and Insurance Management Society, cautions that the Neal Bill, introduced by Rep. Richard Neal, D-MA, and Senator Robert Menendez, D-NJ, could mean hardening rates in the future.

If passed, the legislation would place significant restrictions on domestic insurers that cede reinsurance to their foreign affiliates.

The scope of the bill would impact a majority of the insurance industry, but would particularly hit consumers in areas of the country subject to natural disasters and terrorism risks.

“From a capacity standpoint, if we take away one of the tools for reinsurers, it’s going to reduce their ability to share risk—and therefore would have a deleterious effect on capacity,” says John Phelps, board liaison to RIMS’ External Affairs Committee and director of business risk solutions for Blue Cross and Blue Shield of Florida.

Fleming believes the Super Committee that is working on the budget for Congress is considering adding the Neal Bill. If that happens, he says, “it will reduce capacity somewhat for reinsurance—and that will be passed on to customers, I’m sure.”

While he is not sure about the scope of the impact, one thing is certain: “It will make coverage more expensive.”  

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