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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.