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.

 

 


Tuesday
May232017

Statement on House Committee on Ways & Means Hearing on Increasing U.S Competitiveness and Preventing American Jobs from Moving Overseas

“The Coalition for Competitive Insurance Rates (CCIR) appreciates and supports the efforts undertaken to enact tax reform and jump-start economic growth," said Tom Feeney, president and CEO of the Associated Industries of Florida and spokesman for the Coalition for Competitive Insurance Rates. "However, the rationale underlying adoption by the US of a border adjustment tax (BAT) simply does not apply to insurance and reinsurance – other countries do not apply a similar tax. Applying the BAT to insurance and reinsurance will simply act as a new tax, driving up the cost of insurance for all consumers. We are committed to continuing to work with all policymakers to make meaningful tax reform a reality this year.” 

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A Border Adjusted Tax On Reinsurance Will Reduce The Supply Of Insurance From A Minimum Of $15.6 Billion And Potentially Up To $69.3 Billion, Finds The Brattle Group. "At the low end, for example, a 20 percent reduction in reinsurance would lead to a $15.6 billion drop in the supply of U.S. insurance, which is 67 percent greater than the impact we calculated under the Warner/Neal Bill, and U.S. consumers would pay $8.4 billion more to obtain the same coverage. At the high end, an 80 percent reduction in reinsurance would lead to a $69.3 billion drop in the supply of U.S. insurance, which is 7.5 times the impact we calculated under the Warner/Neal Bill, and U.S. consumers would pay $37.4 billion more to obtain the same coverage." (Michael Cragg Et Al., "The Impact Of Offshore Affiliate Reinsurance Tax Proposals On The U.S. Insurance Market," The Brattle Group, 1/23/17)

To Obtain The Same Level Of Insurance Coverage, The Brattle Group Finds Businesses And Consumers Will Have To Pay $16.9 Billion More, Assuming A 39 Percent Reduction In Reinsurance. "If we apply our analysis of the Warner/Neal Bill and assume the 39 percent reduction in reinsurance ceded by foreign firms in long-return lines similarly applied to all firms and all lines, the impact would be a $31.2 billion drop in the supply of U.S. insurance, and U.S. consumers would pay $16.9 billion more to obtain the same coverage." (Michael Cragg Et Al., "The Impact Of Offshore Affiliate Reinsurance Tax Proposals On The U.S. Insurance Market," The Brattle Group, 1/23/17)

Applying The BAT To Reinsurance Would Raise Costs On Louisianan Businesses By $1.1 Billion Over Next Decade Argues Joint Analysis By R Street And The Pelican Institute For Public Policy. "The report, jointly released by Washington think tank R Street Institute and New Orleans-based Pelican Institute for Public Policy, states that a border adjustment tax, or BAT, would cost Louisiana consumers an additional $1.11 billion in higher property-casualty insurance premiums over the next 10 years." (Lance Traweek, "Study: Border Adjustment Tax Would Hike State’s Insurance Premiums," New Orleans City Business, 5/4/17)

Analysis Finds Texan Businesses Would Pay $3.39 Billion More Over A Decade For Insurance If BAT Is Applied To Reinsurance. "A border-adjustment tax of the kind being proposed by House Republicans (as well as other proposals to limit insurance companies' opportunity to pool risks internationally) would place a tax on reinsurance purchased outside of the United States. As a result, there would be incentives to concentrate those risks here on our shores, instead of spreading the risk around the world. This would lead to a less-competitive insurance marketplace and higher premiums. The result of that tax would be hugely expensive for Texans, in particular, with $339 million each year in additional costs." (Ian Adams, "How Trump's Border Tax Could Boost Your Property Insurance Rate," Dallas Morning News, 5/4/17)

Thursday
May042017

Study: Border adjustment tax would hike state’s insurance premiums

Lance Traweek

As appeared in New Orleans City Business.

As Congress contemplates structural changes to the U.S. tax code, proposals that focus on international reinsurance would have unfavorable consequences that could undo progress, according to a new study.
The report, jointly released by Washington think tank R Street Institute and New Orleans-based Pelican Institute for Public Policy, states that a border adjustment tax, or BAT, would cost Louisiana consumers an additional $1.11 billion in higher property-casualty insurance premiums over the next 10 years.
The authors say the progress is evident since 2005, when Hurricane Katrina created the costliest insurance event in the nation’s history.
Dr. Lars Powell, executive director of the Alabama Center for Insurance Information and Research at the University of Alabama and a senior fellow of the R Street Institute, said passing such legislation would have severe consequences for insurance companies that originate outside the U.S.
The forecast stems from eyeing the impact that a border adjustment tax would have on the supply of international reinsurance and estimating the effects that changes in price and availability would have on the state’s insurance market and policyholders. Because property and casualty insurers that do business in Louisiana and other states privy to natural disasters yield a larger volume of risks to foreign reinsurers,
Louisiana would experience noticeably higher insurance premiums under a border adjustment tax system, the report notes.
Locally, the Port of New Orleans uses companies like the Lloyd’s of London to insure its multimillion-dollar property assets in the event of a hurricane.
Powell said diversification in the insurance industry is crucial.
“If you can mix the U.S. hurricane exposure in Louisiana and Florida and the earthquake exposure in California, those are all very large things to insure,” Powell said. “If you want to diversify that, you mix it with flood risk in Europe and earthquake risk in Asia.”
He said these are all large perils that can someway offset the ones in the U.S.
“If you lose the ability to do that, then by definition the price must go up,” he said.
The study uses commercial catastrophe models to determine the diversification effect, comparing global and national diversification numbers. Without global diversification, U.S. insurance companies would have to raise $71 billion in capital and would increase premiums to foot the bill – an amount Powell calls a “conservative estimate.”
While the exact outlines of congressional tax-reform efforts are yet to be decided, proposals such as a BAT or a partial BAT, a reciprocal tax, territorial tax, a discriminatory tax on insurance affiliates or a minimum tax all would affect insurers’ ability to use reinsurance to spread risk globally, and disproportionately hurt consumers in states like Louisiana and their ability to secure insurance coverage for their homes, cars and businesses, according to the report.
If Congress decides to enact a BAT as part of an overall tax-reform package, the authors urge that the legislation take into account that developed nations that employ the conceptually similar value-added tax (VAT) system almost universally exempt financial services like reinsurance from the tax.

 

 

Thursday
May042017

How Trump's border tax could boost your property insurance rate

Ian Adams

As appeared in the Dallas Morning News.

As Congress and the White House begin talks to reform the U.S. tax code, Texans should be particularly concerned. The taxes on imports that federal lawmakers are considering would force Texas consumers to spend $3.39 billion more on property insurance over the next decade.

That figure comes from research I and my colleagues conducted in a new joint paper from the Texas Public Policy Foundation and the R Street Institute, finding that the proposed border-adjustment tax would be a bad deal for Texas and for other states, including California and Florida, that are exposed to major natural disasters. Our primary concern is that the tax will lead to much higher costs for reinsurance, the primary tool insurance companies use to spread risk around the globe.

The reason that Republicans are eager to find a new source of income comes down to the hoops they have to jump through to make tax reform stick. Without garnering 60 votes in the Senate (a requirement of that chamber's Byrd Rule and budget-reconciliation process) Republicans have to present a plan that either raises more revenue or is revenue-neutral if they want the changes to last more than 10 years. That means they must find a way to offset, or "pay for," their tax cuts via new sources of revenue. This is how the prospect of a border-adjustment tax came to light.

 

A border-adjustment works like this: U.S. companies would no longer be allowed to write off the cost of goods and services imported from abroad. Also, income they earn from exports would be tax exempt. That is, tax imports, not exports. With a tax rate of 20 percent, such a system would raise more than $1 trillion in revenue over the next decade. In the process, such a tax would raise the prices of all kinds of goods and services. Insurance is one of those products that would disproportionately affect Texas, given that the Lone Star State is especially catastrophe-prone.

Floods, hail and hurricanes are all frequent visitors to Texas. To protect against that risk, Texans pay among the highest property insurance rates in the nation. Those rates are created by a combination of factors but include the cost of guaranteeing that claims, when made, will be paid.

Primary insurers, those that spend heavily to make sure that folks walk around with advertising jingles stuck in their heads, work with another group of insurers known as "reinsurers" to protect consumers from instances in which disasters strike and many claims have to be satisfied at once. Like consumers, primary insurers pay a premium for the insurance they purchase from reinsurers.

Because reinsurers cover big risks associated with disasters, they have to bundle together various risks from around the globe. The risk of terrorism in London is combined with earthquake risk from New Zealand and hail risk in Texas, because the chances of events occurring at the same time are minimal. This international process is what enables reinsurance rates to remain low because, when it comes to risk, concentration is a bad thing.

A border-adjustment tax of the kind being proposed by House Republicans (as well as other proposals to limit insurance companies' opportunity to pool risks internationally) would place a tax on reinsurance purchased outside of the United States. As a result, there would be incentives to concentrate those risks here on our shores, instead of spreading the risk around the world. This would lead to a less-competitive insurance marketplace and higher premiums. The result of that tax would be hugely expensive for Texans, in particular, with $339 million each year in additional costs.

The increased premiums would make it harder and costlier for property owners to buy home insurance, for employers to buy workers' compensation insurance, for factories and industrial plants to insure their machinery, and for contractors to get the terrorism insurance they need to erect new buildings.

While a border-adjustment tax would have a massive impact on the economy as a whole, its impact in Texas would be uniquely negative. Policymakers throughout the state and in Washington must come to understand that making America great again means spreading risk abroad.

Ian Adams is associate vice president for R Street Institute. 

Wednesday
Mar292017

South Florida 100: Steven Geller Speaks Out on the Importance of Reinsurance

Steven Geller

As appeared in the South Florida Sun Sentinel.

Reinsurance is the insurance purchased by insurance companies. Reinsurance is global in nature — hurricanes in Florida, earthquakes in Italy, terrorism in London, and typhoons in Asia are all possible, but the risks are diversified. 87% of Florida private reinsurance for homeowners is from foreign companies. The Border Adjustment Tax (BAT) being discussed in Washington would place a 20% tax on these foreign companies. Florida Tax Watch estimates that this would directly increase homeowner’s insurance rates by about 10%, and by 14% to 31% once the effects of diversification are included. Floridians must contact their Congresspeople to oppose this increase.

Click to read more...

Monday
Mar202017

Reinsurance as import may pose risk to Florida: Study

Ted Bunker

Florida could see residential and commercial property insurance costs soar if lawmakers slap offshore reinsurers with a national border adjustment tax (BAT) proposed by Republicans in Congress, according to a new study.
Should a 20 percent BAT be applied to transactions with offshore reinsurers by classifying the coverage as an import, the study released today by non-profit advocacy organisation Florida TaxWatch assumes the levy would be passed on to insureds through price hikes.
The direct result would be increases of as much as 12.9 percent in annual premium for homeowners insurance, with an aggregate increased cost of commercial and residential property insurance of up to $2.6bn.