Coalition for Competitive Insurance Rates

Coalition Warns Tax on Reinsurers will Increase Costs, Limit Coverage Availability

Proposed Discriminatory Tax on Reinsurers will Increase Costs, Limit Coverage Availability for American Consumers

(Washington, DC) – May 22, 2013 – The Coalition for Competitive Insurance Rates (CCIR), the leading voice for continued and increased competition within the insurance industry, strongly objected today to H.R. 2054, introduced by Congressmen Richard Neal (D-MA) and Congressman Bill Pascrell (D-NJ), and S. 991, introduced by Sen. Bob Menendez (D-NJ). The legislation, which closely resembles bills Rep. Neal and Sen. Menendez introduced in the 112th Congress, would deny a tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers.

“The legislation introduced closely mirrors thinking we have seen time and again from the Obama Administration and Congress,” said Bill Newton, executive director of the Florida Consumer Action Network. “Our concerns remain the same: instituting a tax on foreign affiliate reinsurance would only result in a more limited US domestic insurance capacity and more expensive insurance coverage, a major threat to homeowners and small businesses whether they are in Florida, Massachusetts, New Jersey or elsewhere, but particularly those in states that are historically susceptible to natural disaster.”

The important role of reinsurance in the US insurance market is well-illustrated by the natural disasters Americans experienced in 2012. Estimated losses from Hurricane Sandy currently stand at over $19 billion and may reach $25 billion. Regardless of the final total, international insurance companies are expected to cover nearly 50 percent of the losses caused by the storm—their share now estimated at more than $9 billion.

“This legislation would shift the financial burden of rebuilding following a disaster onto already strained domestic insurers and their policyholders,” said James Donelon, the Louisiana commissioner of insurance. “As we enter the 2013 tornado and hurricane seasons, we need Congress and the President working on legislation to aid rebuild efforts, not hinder them with avoidable economic challenges.”

In his FY 2014 budget, President Barack Obama included a proposal similar to Reps. Neal and Pascrell and Sen. Menendez’s legislation. Both the budget proposal and legislation seek to deny a tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers. This protectionist tax treatment of US insurers’ affiliate reinsurance would decrease capacity and hike the cost of insurance while also limiting competition in the US insurance marketplace.

“The proposals now before Congress would impose a massive protectionist tariff in order to prohibit a business practice common to all major insurance companies,” said Eli Lehrer, president of the R Street Institute. “The current system doesn’t offer a tax break, but simply creates a level playing field.”

In an economic impact study of previously introduced Neal-Menendez legislation, the Brattle group, a leading economic consulting firm, found that the proposed tax would reduce the net supply of reinsurance in the US by 20 percent, forcing American consumers to pay $11 to $13 billion more a year for the same coverage.  Further, because of the design of the proposed tax, it would significantly disrupt insurance markets while failing to raise revenue in a significant way.

“International reinsurers are essential to the US insurance market – they are financially strong and have the ability to fill the gaps in coverage availability that arise while domestic insurance companies are coping with an influx of claims following a disaster,” argued Carolyn Snow, Risk and Insurance Management Society (RIMS) board liaison to the society’s external affairs committee. “The ability to pool US hurricane and earthquake risks with the risks for typhoons in Japan or earthquakes in Latin America means US coverage costs less than it would without reinsurance. Americans will be directly impacted by the Neal-Pascrell-Menendez legislation, and they will feel it in their wallets when they’re left with the bill.”


The Coalition for Competitive Insurance Rates is made up of business organizations, consumer advocacy groups, insurers and their associations. For more information on CCIR, please visit

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Ava Dyer, Podesta Group

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