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.

 

 


Monday
Oct162017

Op-ed: Proposed Tax Targeting Global Affiliate Reinsurance to Raise Costs for Americans

By Dennis Kerrigan

As appeared in the Morning Consult.

“A win-win for American taxpayers and American-based businesses.” That’s the claim that was recently made by an insurance executive who was advocating a punitive new tax targeting global affiliate reinsurance. This new tax targets global insurers like Zurich Insurance Group and will add billions in costs for American businesses and families who are navigating an increasingly risky world.

Importantly, studies show that this proposal will shrink the U.S. economy by $1.4 billion and create an uneven playing field in the U.S. insurance market. Congress should reject this call for protectionism that is at the expense of American businesses and homeowners.

Zurich Insurance began operating in the United States over 100 years ago. In our early years, we supported the construction of the Hoover Dam and insured the Chicago World Fair. More recently, we supported the recovery efforts after Hurricane Katrina and Superstorm Sandy.

In fact, global insurers and reinsurers paid more than 60 percent and 48 percent, respectively, of the claims associated with these devastating storms. Indeed, much like other globally based companies operating in the United States, we’re part of the fabric of the American economy.

Our global capacity is essential to the success of our American business customers. Natural catastrophe, terrorism and cyber risks are all rising. And in our increasingly global economy, a disruption in Europe, or Mexico, is far more likely to impact American businesses today than ever before. Reinsurance enables us – and our domestic and global competitors – to diversify these risks, lowering costs for policyholders. Ironically, several U.S.-based insurers who currently support this punitive proposal actually opposed similar legislation in Brazil in 2011.

Affiliate reinsurance allows insurance groups to better manage capital and risk over the long term. As such, insurers that use affiliate reinsurance transactions can more quickly deliver support after a major catastrophe, whereas an unaffiliated reinsurer may raise prices after a major catastrophe, ultimately hurting consumers who may rely upon that global capacity.

Additionally, reinsurance transactions may be less efficient when reinsurers and insurers don’t have access to the same information about the underlying risk. These adverse selection problems plague the unaffiliated reinsurance market, thereby reducing insurance capacity. That problem doesn’t exist when you’re diversifying risk among your own network.  

For these reasons, both global and domestic groups use affiliate reinsurance. Combined with much-needed global capacity, these transactions enable global insurers to better serve high-risk geographies and business lines. The result is more effectively priced and robust insurance coverage for American businesses and families.

Unfortunately, in advancing this new tax rule targeting risk-diversifying transactions, proponents continue to ignore four realities.

First, research shows this new tax will increase costs and risks for American businesses and families, especially in high-risk geographies. A recent study by the Brattle Group and the University of Alabama professor Lawrence Powell found that consumers would have to pay $5 billion more to obtain the same level of coverage they currently enjoy.

And states facing more catastrophic risks will bear most of the burden. For example, Californians would face nearly $500 million in higher costs, while New Yorkers, Texans, Floridians and Louisianans would face $335 million, $271 million, $259 million and $62 million in costs, respectively. No wonder many state insurance commissioners – charged with overseeing the private sector’s capacity to support their communities after crises – and agriculture commissioners have joined insurers and federal government officials in opposing these proposals in the past.

Second, this proposed change is not used in any other country, making the United States an outlier on both tax policy and risk diversification, while the rest of the world is working to diversify risk globally to best protect their businesses and families. Tax reform aims to put the United States on a level playing field, yet this proposed change amounts to nothing more than trade protectionism that is counter to the reform’s goals.

Third, higher costs and more risk is not a recipe for economic growth. The Tax Foundation explains that this punitive proposal would decrease U.S. gross domestic product by $1.4 billion and would raise only $440 million annually. Moreover, for every dollar raised, the private sector would lose $4.07. The meager revenue benefits simply don’t outweigh the costs.

Finally, globally based insurance groups operating in the United States face the exact same rules as domestic insurers. These reinsurance transactions are regulated at the state level by insurance commissioners and by the Internal Revenue Service to guard against gaming. In fact, several global insurers pay an effective tax rate that is actually higher than the U.S. domestic insurer average, demonstrating that this punitive tax is merely a solution in search of a problem.

Higher costs, more risk and less growth. That’s the result of this proposal. Given the evidence, Congress should reject this call for protectionism that benefits a subset of one industry at the expense of U.S. businesses more broadly and puts the U.S. tax system further out of sync with global tax norms.  

Dennis Kerrigan is the chief legal officer for Zurich North America and the chairman of the Organization for International Investment.

 

Friday
Sep152017

Op-ed: A hurricane tax? You cannot be serious

By Ian Adams

As appeared in Crain's New York Business

In the midst of the most active hurricane season in recent memory, Congress is contemplating tax reform measures that could lead to an additional $1.21 billion in property-casualty insurance premiums for New Yorkers over the next decade. Given the ever-present—and potentially growing—risk of climate-related catastrophe, this could not come at a worse time.

The New York estimate comes from a new study by the R Street Institute concerning the projected impact of new taxes on cross-border reinsurance transactions, such as a territorial tax, a discriminatory tax on insurance affiliates or a full or partial border-adjustment tax. All of these taxes share a common characteristic: They hinder the ability of insurers to spread their risks globally, making premiums more affordable. The affordability of insurance bears directly on the ability of a region to recover from the types of natural disasters too frequently battering the eastern U.S.

On the heels of Hurricane Harvey, Hurricane Irma’s devastation of Florida is still being assessed and tallied. While it will take the Sunshine State years to recover, the Southeast is not alone in its experience. New Yorkers are also familiar with storm-born devastation and the process of recovery. In fact, New York is one of the states most vulnerable to hurricanes, severe storms and flood risk. Only five years ago Hurricane Sandy wreaked $9.6 billion worth of destruction on New York alone. Three of the costliest hurricanes in U.S. history (Ivan, Frances and Sandy) directly affected New York.

While recovery after a catastrophic event is a multiyear process, it can be sped along by the availability of private capital. The Northeast’s rapid recovery from Sandy was made possible largely by the availability of affordable private insurance, which depends on reinsurers' ability to spread risk internationally. Again, this is because diversifying risk across the globe allows reinsurers to hedge against the occurrence of multiple events at the same time.

For instance, a reinsurer may bundle New Zealand earthquake coverage and Japanese tsunami coverage with New York wind and flood coverage to offer rates that are lower than would otherwise be possible if only a single risk were on that reinsurer’s book.

The reason New Yorkers ought to care about these seemingly obscure machinations of international finance is that the primary insurers—the ones that advertise nonstop during Giants and Jets games—rely on reinsurers to make their property coverage possible. As in other states and regions exposed to major natural disasters, insurers that do business in New York cede a large volume of risks to foreign reinsurers.
Thus, New York, like these other states, would experience dramatically higher insurance premiums under tax systems disallowing deductions for cross-border reinsurance transactions because the price of reinsurance purchased by primary insurers would increase. Such changes to the tax code would therefore disproportionately harm consumers' ability to secure insurance coverage for their homes, cars and businesses.

While it may be tempting for Congress to seek revenue by taxing cross-border reinsurance transactions, the costs to consumers in New York would be felt elsewhere, and, at $1.21 billion over 10 years, are substantial. In fact, congressional tax reform could reduce the availability of coverage necessary to recover from hurricanes. To avoid such a scenario, tax reform must avoid the inclusion of punitive insurance taxes against offshore capital that allows distribution of risk around the globe. If it doesn’t, New York is getting a bad deal.

Ian Adams is associate vice president of state affairs with the R Street Institute, a nonprofit, nonpartisan think tank located in Washington, D.C.

 

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