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.

 

 

A proposal in President Barack Obama’s FY 2017 budget seeks to deny a tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers. The proposal closely resembles legislation introduced in Congress by US Representative Richard Neal (D-MA) and Senator Mark Warner (D-VA) that would drastically raise insurance rates across the country. The President’s budget proposal and the Neal-Warner legislation would impose an unnecessary and costly tariff on the companies that help spread insurance risks globally. This ability to spread risk has been especially beneficial for consumers and businesses in areas subject to hurricanes, earthquakes, crop failures and other forms of disaster.

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

 

 


Monday
Feb062017

Increasing Reinsurance Taxes Would be a Manmade Disaster

By Josiah Neeley

As appeared in Real Clear Policy.

With the new Congress underway, tax reform is at the top of the agenda. Many of the ideas now being proposed, such as proposals to fix our punitive corporate tax system, have merit. Also included among the proposals, however, are changes to the tax code that could result in higher costs of basics, such as housing and health care, and thus potentially harm Americans.

Particularly concerning is legislation that could negatively impact the market for reinsurance. Reinsurance is a special type of insurance purchased mainly by property and casualty insurance companies to deal with risks caused by rare but extremely costly events, such as hurricanes and terrorist attacks. 

Currently, an insurance company that takes out a reinsurance policy can take a tax deduction for the premiums it pays as a cost of doing business. Legislation filed in the 114th Congress by Sen. Mark Warner (D-VA) and current House Ways and Means Committee Ranking Member Richard Neal (D-MA) would eliminate this deduction for companies that purchase reinsurance from foreign affiliates.

But the House Republican “blueprint” for tax reform has even more far-reaching provisions. Depending on how the details of the plan are fleshed out, the GOP proposal could effectively result in a 20 percent tax on all reinsurance purchased from foreign companies. 

Supporters of the proposed changes claim they are necessary to prevent tax avoidance. Yet in reality, the Warner-Neal bill is only expected to raise $440 million annually, according to an analysis by the Tax Foundation. This is a puny amount compared to an industry measured in the trillions.

The bill would, however, make purchasing reinsurance less attractive. The result? Insurance companies will rely less on reinsurance and more on costly alternatives such as tying up valuable capital that might otherwise be invested in the economy. 

Making it harder to get foreign reinsurance will leave the United States with more risk. The global nature of the reinsurance market makes it easier for companies to spread risk. For instance, it’s less costly to insure against the risk of a hurricane in Florida and an earthquake in Japan together, rather than separately, because the two events are not likely to be correlated and premiums from one event can be used to cover the losses from the other. This is especially important to the United States, which has faced more than its fair share of natural disasters and other large claims. Eight out of the top 10 costliest insurance losses worldwide between 1970 and 2015 involved the United States.

The effect of making it harder to get foreign reinsurance, then, would be to increase premiums and decrease coverage for American consumers. By limiting risk spreading, the measure would force companies to keep greater capital reserves, making them more costly and less efficient. A recent analysis by the Brattle Group found that under the Warner-Neal bill, net supply of reinsurance would drop by $18.3 billion, or one-eighth of the total for non-affiliate and affiliate reinsurance combined. American consumers would have to pay an additional $9.3 billion per year to receive the same coverage they currently have.

These increased costs would result in a 2.2 percent decline in insurance coverage, with certain lines of business facing declines of as much as 17 percent. The situation would be even worse in coastal states such as Texas, which face a variety of risks from rare but high-impact events. Premiums for home insurance in Texas could rise by as much as $60 million a year, plus $81 million in additional costs for business insurance. 

America desperately needs tax reform. But reforms should not leave Americans poorer and less safe.

Josiah Neeley is senior fellow and Texas director at the R Street Institute.

Tuesday
Jan312017

Neal Bill could hamper insurance penetration: Study

Rob Lenihan

Lawmakers’ years-long attempts to close the so-called Bermuda tax loophole could cause hardship for U.S. businesses and consumers attempting to purchase insurance, a recently released study warns.

The Brattle Group, a Cambridge, Massachusetts-based consultancy, on Jan. 23 released a study that found the Neal Bill tax proposal would adversely affect U.S. business and homeowners, as they would likely encounter reduced availability and higher prices for property/casualty insurance for natural catastrophes and other infrequent but high-loss events.

Click to read more...

Thursday
Jan262017

Study Shows Impact Of US Foreign Reinsurance Bill

By Scott Hamilton

Brattle Group, a provider of consultancy services and expert testimony, has updated its economic impact study of legislation introduced into the US Congress to close the so-called "tax loophole" said to provide foreign-owned insurers with an opportunity to obtain a significant advantage over their American competitors.
The legislation would eliminate the perceived competitive advantage for foreign-owned insurers, by deferring their tax deduction for any reinsurance premiums paid to a foreign affiliate (if the premium is not subject to US tax) until the insured event occurs.
Brattle Group, a provider of consultancy services and expert testimony, has updated its economic impact study of legislation introduced into the US Congress to close the so-called "tax loophole" said to provide foreign-owned insurers with an opportunity to obtain a significant advantage over their American competitors.

The legislation would eliminate the perceived competitive advantage for foreign-owned insurers, by deferring their tax deduction for any reinsurance premiums paid to a foreign affiliate (if the premium is not subject to US tax) until the insured event occurs.

Click to read more...

 

Thursday
Jan262017

Don’t tax foreign reinsurers: Report

By Will Koblensky

Taxing foreign reinsurers taking on risk from their US affiliates would reduce the supply of insurance, increase costs for clients and is particularly negative for the P&C market according to a report by economic consultancy, The Brattle Group. 

A drop in reinsurance supply is estimated at 13% nationwide or an aggregate decrease of $18.3 billion. This would lead to costs going up for consumers, Brattle said, by $5 billion annually.

The tax being considered by Congress is meant as a punitive measure and The Impact of Offshore Affiliate Reinsurance Tax Proposals on the US Insurance Market study found reinsurance structures are paramount in natural disaster coverage.

Click to read more...

Wednesday
Jan252017

GOP tax plan could boost prices for Californians’ insurance

By Steven Greenhut

SACRAMENTO – Donald Trump has only been president since Friday, so it’s too early to know what his “America first” policies will mean economically. But an ongoing debate from the world of property insurance could provide hints as to what some of these policies might mean.
For years, some Democratic members of Congress have been pushing a “reinsurance” measure that is protectionist in nature. Reinsurance is insurance purchased by insurance companies, and is of particular importance for Californians because of its role in protecting against widespread calamity – i.e., if a major earthquake or wildfire hits a particular region.