American businesses and consumers rely on the availability of insurance services provided at competitive rates. The Coalition for Competitive Insurance Rates is made up of business organizations, consumer advocacy groups, insurers and their associations advocating for continued and increased competition within the insurance industry.

 

 

Legislation introduced in Congress by US Representative Richard Neal (D-MA) and Senator Mark Warner (D-VA) would drastically raise insurance rates across the country by denying a tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers. The Neal-Warner legislation, which mirrors measures in past presidential budget proposals, would impose an unnecessary and costly tariff on the companies that help spread insurance risks globally. Spreading risk has been especially beneficial for consumers and businesses in areas subject to hurricanes, earthquakes, crop failures and other forms of disaster. This ability to spread risk is also imperiled by the border-adjusted tax featured in the House GOP Blueprint for Tax Reform, which would unfairly target international insurers and reinsurers.

More than 100 independent experts, state government officials, business owners, and associations have publicly filed opposition letters to these tax proposals. Additionally, numerous economic research firms and public policy think tanks, including the Tax Foundation, the Brattle Group and the John Locke Foundation, have published independent studies pointing out the potential economic consequences of the proposals.

 

 


Wednesday
Jun142017

Op-ed: A border adjustment tax could wreck the reinsurance market

By Mary Kate Hopkins and Alan Nguyen

As appeared in the Biloxi Sun Herald

If you like your homeowner’s insurance, you might be able to keep it under a border adjustment tax. But it will cost you a lot more.

 

That’s because U.S. insurers go to the world market for reinsurance to protect themselves against catastrophic loss — in effect, importing insurance while exporting risk.

 

Reinsurers spread risk by protecting insurance companies against the possibility of huge losses from hurricanes, earthquakes and other natural disasters all over the world. That makes reinsurance a global business by design.

 

But if the border adjustment tax, or BAT, were applied to services, it could bar U.S. companies from treating the purchase of foreign reinsurance as a deductible business expense.

 

That would increase risk, limit competition and drive up costs for everybody who buys insurance.

A recent study by the Brattle Group said a border adjustment tax would cost U.S. consumers between $8.4 billion and $37.4 billion more a year just to keep the same coverage they have now.

 

And, as our new report from Freedom Partners Chamber of Commerce and Americans for Prosperity shows, the effects would reach far beyond just how much people pay to insure their homes and their cars.

 

Industries such as the Gulf Coast’s offshore oil and gas drillers depend on international firms for insurance and reinsurance. If they can’t get coverage for their rigs in the Gulf, or if that coverage becomes prohibitively expensive, the lost jobs and higher costs would ripple through Gulf state economies and beyond.

 

The reasons why are simple economics — and geography.

 

“Of the 40 insurance companies to report losses from 2010’s Deepwater Horizon disaster, 16 are based in Bermuda, 13 are European, nine are American, one is Australian and one is Japanese,” reports a study by the R Street Institute of Washington, D.C., and the Louisiana-based Pelican Institute.

 

Under a BAT, it would have cost American insurance firms more to buy reinsurance from three-quarters of those companies.

 

Even Rep. Kevin Brady, chairman of the House Ways and Means Committee and a leading supporter of the border adjustment tax, has acknowledged that the global nature of reinsurance poses a special challenge for those who back the BAT.

 

“Financial services, insurance are two of those areas that we’re looking at thoughtfully to make sure we’ve got the right incentives and the right provisions in place because they are sort of a different animal,” Brady said at a Financial Services Roundtable event Jan. 25. “They have a different approach than many businesses do. We want to make sure the tax code actually encourages stability in those industries for the long term.”

 

Brady has said he opposes creating exemptions for financial services or any other industry, but those comments indicate he might be open to the idea in some form.

 

That’s the road others have followed. Many countries exempt financial services from their value-added taxes. Some BAT supporters have suggested doing the same for any U.S. border adjustment tax.

That’s exactly the wrong approach. Anytime a conversation about tax policy turns toward figuring out who wins and who loses, it’s the wrong conversation to be having.

 

Rather than carving out exemptions for special interests, Congress should carve the BAT out of tax reform entirely and focus on passing legislation that creates a fairer, flatter and simpler system for all concerned.

 

Mary Kate Hopkins is a senior policy analyst at Americans for Prosperity. Alan Nguyen is a senior policy adviser for Freedom Partners Chamber of Commerce.

 

 

Sunday
Jun112017

Op-ed: Legislative one-two punch

As appeared in the Greenville Reflector.

June 1 marked the start of hurricane season – a date North Carolinians know well.

But as meteorologists keep a watchful eye on the Atlantic this summer, my attention will be focused on Washington where a powerful storm of legislation is brewing that would make it more difficult to obtain and afford the insurance we need to stay protected against natural disasters.

Every year our state confronts catastrophic hurricane risk and international-based reinsurers have been there to help the state recover and rebuild. Now, two proposals that may be included in upcoming corporate tax reform plans seek to shrink North Carolina’s insurance and reinsurance market, leaving our state’s consumers with higher costs for the same insurance coverage.

One proposal, crafted by U.S. Rep. Richard Neal, D-Mass, and introduced in previous Congresses and in past administration budget messages, would deny tax deductions unfairly to domestic insurers for certain reinsurance premiums paid to foreign-based affiliates. The other proposal — the border-adjusted tax featured in the House Ways and Means Committee Chairman Kevin Brady’s, R-Texas, Blueprint for Tax Reform — if applied to international reinsurance would dramatically reduce the supply and increase the price of reinsurance upon which our state’s economy depends. All this, resulting in higher premiums for North Carolina residents and businesses.

In a 2017 study released by The Brattle Group, a global economic consulting firm, found that the Neal proposal would decrease the supply of reinsurance by 13 percent nationwide. The result: a steep hike of $5 billion in higher annual costs for consumers. These price increases are especially profound in North Carolina, where, across all lines of insurance, North Carolinians would face a steep cost increase of $76.6 million.

Building on the Brattle study, a new economic analysis published by the John Locke Foundation, an independent nonprofit think tank, found that the border-adjustment provision in the House GOP’s Tax Reform Task Force Blueprint, if applied to insurance and reinsurance, would cost North Carolinians an extra $800 million over 10 years — an extra $80 million per year.

Global insurers and reinsurers are the bedrock of the insurance and reinsurance market, because they diversify their catastrophic risk globally leading to lower prices and more coverage that benefits the state and national economy. Global reinsurers play an essential role in stabilizing our insurance marketplace; without them, risk concentrations would make it more difficult for domestic insurance companies to cope with an influx of claims following a disaster.

Every year North Carolinians confront catastrophic hurricane risk and international-based reinsurers have been there to help the state recover and rebuild. Most recently in 2016, Hurricane Matthew brought widespread flooding to North Carolina and wreaked havoc in states like Florida where extreme winds caused severe damage. Loss estimates from that storm now total $2.3 billion with international-based reinsurers expected to cover nearly half.

The 2016 Atlantic hurricane season was the first above average season since 2012. As we prepare for this year’s wave of storms, I urge North Carolina’s congressional delegation to oppose misguided and discriminatory proposals that leave our state vulnerable to higher insurance prices.

Cherie Berry is the North Carolina Commissioner of Labor and heads the N.C. Department of Labor. 

Wednesday
Jun072017

Op-Ed:Disaster insurance ‘needed’ to rebuild NC during storm season

As appeared in the Charlotte News & Observer

June 1 marks the start of hurricane season, a date North Carolinians know well. But as meteorologists keep a watchful eye on the Atlantic Ocean this summer, my attention will be focused on Washington, D.C., where a powerful storm of legislation is brewing that would make it more difficult to obtain and afford the insurance we need to stay protected against natural disasters.

Every year our state confronts catastrophic hurricane risk, and international-based reinsurers have been there to help the state recover and rebuild. Now, two proposals that may be included in upcoming corporate tax-reform plans seek to shrink North Carolina’s insurance and reinsurance market, leaving our state’s consumers with higher costs for the same insurance coverage. One proposal, crafted by U.S. Rep. Richard Neal, D-Mass., and introduced in previous congressional and past administration budget messages, would deny tax deductions to domestic insurers for certain reinsurance premiums paid to foreign-based affiliates.

The other proposal – the border-adjusted tax featured in the Blueprint for Tax Reform by House Ways and Means Committee Chairman Kevin Brady, R-Texas, – if applied to international reinsurance, would dramatically reduce the supply and increase the price of reinsurance, upon which our state’s economy depends. All this would result in higher premiums for North Carolina residents and businesses.

Global insurers and reinsurers are the bedrock of the insurance and reinsurance market because they diversify their catastrophic risk globally, leading to lower prices and more coverage that benefits the state and national economy. Global reinsurers play an essential role in stabilizing our insurance marketplace; without them, risk concentrations would make it more difficult for domestic insurance companies to cope with an influx of claims following a disaster.

As we prepare for this year’s wave of storms, I urge North Carolina’s congressional delegation to oppose misguided and discriminatory proposals that leave our state vulnerable to higher insurance prices.

Cherrie Berry

North Carolina Commissioner of Labor

Thursday
Jun012017

Op-ed: Congress should reject the ‘border-adjustment’ tax increase on hurricane insurance

By Manny Diaz

As appeared in the Miami Herald.

It’s June 1, that dreadful day all Floridians know and fear — it marks the official start of hurricane season.

Almost 12 years after Hurricane Katrina hit Miami, my memories are still fresh. Our community was flooded, trees and power lines were knocked down, and some 1.4 million people were left without electrical power.

As mayor of Miami, I worked night and day to restore basic services and later to help families, businesses, and communities to get back on their feet. Hurricanes Wilma and Rita later would ravage the Southeastern and Gulf Coast states.

Congress is going to consider a tax increase on the international insurers that helped our region rebuild and recover from these horrific hurricanes. This tax targets reinsurance — backup coverage — that is obtained outside the United States. By soaking up financial resources that would otherwise be available for capital investment and consumer spending, this tax would discourage economic growth, business starts, expansions, and job creation in our major metropolitan areas.

As city officials across the country prepare for the U.S. Conference of Mayors’ annual meeting in Miami Beach in June, they should remember the catastrophes in their communities, from hurricanes and floods to earthquakes and acts of terrorism. And they should the reject the threat that border adjustment — the House Republicans’ initiative to tax imports and subsidize exports — will be incorrectly applied to overseas insurers.

Reinsurance is important because it transfers risks for insurers, allowing them to protect homeowners and businesses in high-risk areas such as South Florida. Tapping global markets means we can balance the risks of disasters all over the world, from flooding in the Southeastern states to earthquakes in Japan. U.S. mayors understand that major hurricane or earthquake events should not be paid for solely by their own constituencies — these costs should be distributed globally to reinsurer shareholders around the world.

Americans account for about half the worldwide demand for reinsurance, and we buy more than half of our backup coverage from foreign sources. In Florida, 91 percent of the reinsurance for homeowners is from foreign sources.

After the “terrible trio” of hurricanes Katrina, Wilma and Rita hit Florida, Louisiana, Texas, Mississippi, and Alabama — and, specifically, the cities of Miami, New Orleans, Houston, and Galveston — non-U.S. insurers and reinsurers provided more than 60 percent of the $68 billion in payments. When Hurricane Sandy struck New York and New Jersey in 2012, flooding New York City’s subways, almost half of the almost $19 billion in payments came from foreign sources.

Similarly, following the terrorist attacks in New York City in 2001, 64 percent of the estimated $27 billion in U.S. payouts for the claims came from overseas insurers and reinsurers. For many major cities, the risks run well beyond hurricanes, floods and acts of terrorism. Los Angeles and San Francisco must reckon with the risks of severe earthquakes, such as the Northridge Earthquake in 1994, which caused $17 billion in insured losses.

A study released by Florida TaxWatch in March found that a 20 percent border-adjusted tax on insurance and reinsurance would have direct and drastic effects on Florida’s economy. The proposal would cut between 42,800 to 77,400 jobs; slash worker earnings by $1.4 billion to $2.6 billion; reduce economic activity in Florida by $2.8 billion to $5 billion; and inflict long-term damage on Florida’s economy.

With less backup-up coverage available, consumers would have to pay $5 billion more per year for their current level of coverage. In Florida, homeowners would have to pay $282 million more per year for basic insurance, while businesses would have to pay an extra $367 million.

According to a recent forecast by the National Oceanic Atmospheric Administration, the 2017 Atlantic hurricane season is forecast to be more active than normal. As we prepare for this above average season, I urge Florida’s congressional delegation, including Sens. Bill Nelson and Marco Rubio, to oppose tax increases on the insurance that allows Floridians to buy homes, build businesses, generate jobs, and raise their families.


Manny Diaz was Miami mayor from 2001-2009; president of the U.S. Conference of Mayors in 2008, and served as a founding board member of the Florida Residential Property and Casualty Joint Underwriting Association, now known as Citizens Property Insurance.
Wednesday
May312017

Point of View: Legislative storm takes aim on state amid storm season

As appeared in Palm Beach Post.

In Washington, a powerful storm of legislation is brewing that would make it more difficult to obtain and afford the insurance we need to stay protected against natural disasters.

Nearly 25 years ago, Hurricane Andrew changed the face of the insurance marketplace in a dramatic way. Up until that point, neither consumers nor insurance companies understood the catastrophic risk exposure to our state. Insurance companies failed and many large companies retreated or significantly reduced their exposure in Florida. A new Florida domestic homeowners’ market and our own Florida Hurricane Catastrophe Fund were born in the wake of Andrew. But part of the reason that this market survived and continues to prosper has been because of private international reinsurance. In fact, 91 percent of private insurance for Florida homeowner insurers is from international reinsurers. Now, two proposals seek to shrink Florida’s insurance and reinsurance market, leaving our state’s consumers with higher costs for the same coverage.

One proposal, crafted by U.S. Rep. Richard Neal, D-Mass., would deny tax deductions unfairly to domestic insurers for certain reinsurance premiums paid to foreign-based affiliates. The other proposal — the border-adjusted tax featured in the House Ways and Means Committee Chairman Kevin Brady’s, R-Texas, Blueprint for Tax Reform — if applied to international reinsurance would dramatically reduce the supply and increase the price of reinsurance upon which Florida’s economy depends.

Florida TaxWatch, an independent nonprofit research institute, recently released a study that found that a 20 percent border-adjusted tax, if applied to international reinsurance, could directly cost policyholders between $430 and $910 more per year. The tax would increase the cost of commercial and residential property insurance in Florida by $1.4 billion to $2.6 billion annually.

Foreign insurers and reinsurers have a long history supporting our state the wake of hurricanes. Simply put, our current Florida insurance marketplace cannot exist without it. Our system is not perfect, but Floridians cannot afford to lose the stability we have gained through managing our risk with this very important tool … international reinsurance.

ROBIN WESTCOTT, TALLAHASSEE

Editor’s note: Robin Westcott was the director of insurer solvency and acting deputy insurance commissioner for the Florida Office of Insurance Regulation.