CCIR Rejects Harmful and Discriminartory Tax Proposal in FY 2014 Budget
FOR IMMEDIATE RELEASE
Emily Flynn Pappas, Podesta Group
202-448-5208 | Epappas@podestagroup.com
Consumers and Business Groups Reject Harmful and Discriminatory Tax Proposal in FY 2014 Budget
President’s budget ignores record weather, natural disasters in 2012
Washington, DC (April 10, 2013) — The Coalition for Competitive Insurance Rates (CCIR), the leading voice for continued and increased competition within the insurance industry, today objected to a proposal in President Barack Obama’s FY 2014 budget that would deny a tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers. CCIR maintains that protectionist tax treatment of US insurers’ affiliate reinsurance would limit capacity and drive up the cost of insurance, a major threat to homeowners and small businesses in disaster-prone states.
“Targeting global insurance companies for discriminatory, punitive taxes would be disastrous for areas vulnerable to natural disasters,” said Bill Newton, executive director of the Florida Consumer Action Network. “Instituting this tax would significantly reduce the supply of reinsurance in the US, decrease America’s ability to manage volatile, catastrophic insurance risk, and would further burden American homeowners, large and small businesses and public sector organizations during these challenging economic times.”
As lawmakers continue to fight for emergency aid to help rebuild following Hurricane Sandy, the President’s budget proposal appears to ignore the facts: international insurance companies are expected to pay nearly 50 percent of the losses incurred from Hurricane Sandy. The international share is currently estimated at $9 billion and could potentially reach $12 billion. Record heat also wreaked havoc across America in 2012. In its year-end crop report, the US Department of Agriculture (USDA) detailed heavy losses caused by the worst drought in 50 years. Corn farmers, for example, produced less than three-fourths of the corn the USDA anticipated when planting was done in the spring. In response, preliminary data from insurance and reinsurance investor analyst reports at the close of harvest in November 2012 estimate that 85 percent of privately insured crop losses (an estimated $1.2 billion) will be paid by international reinsurers.
“As we reflect on the disastrous events of the past year, it is clear that the US needs a robust insurance market that is open to as many competitors as possible and encourages foreign direct investment,” said James Donelon, the Louisiana commissioner of insurance. “Hurricane Sandy and the 2012 drought underscore the important role that international reinsurers play in times of crisis. Global reinsurers are financially strong and have substantial capacity to support US insurance companies. I’m concerned that the tax proposal will limit reinsurance capacity necessary to manage insurance risk in my state.”
The President’s budget proposal closely resembles legislation (HR 3157 and S 1693) introduced by Rep. Richard Neal (D-MA) and Sen. Robert Menendez (D-NJ) in the 112th Congress that, according to an analysis, will drastically raise insurance rates across the country. In an economic impact study of the Neal-Menendez bill, the Brattle Group, a leading economic consulting firm, found that the proposed tax would reduce the net supply of reinsurance in the United States by 20 percent, forcing American consumers to pay a total of $11 to $13 billion more a year for the same coverage they currently have.
In Florida, a state most vulnerable to natural disaster, Brattle estimates that consumers could see their insurance bills increase by more than $817 million. The price of Commercial Multi- Peril Insurance would soar by 12.6 percent to $264 million a year in added costs for Florida businesses, and the price of Homeowners Multi-Peril insurance would go up by 4.2 percent, resulting in $266 million a year in added costs for Florida families. A 2012 report by the catastrophe risk management firm Karen Clark & Co., based on an analysis of more than a century of hurricanes, warns that the United States can anticipate insured losses of at least an average of $10 billion from a hurricane every four years. Simply put, states such Florida would be “underwater” without ready access to international reinsurance markets.
“With increasing potential losses from extreme weather, the need for global reinsurance will continue to expand,” said 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, making it therefore essential for US consumers and businesses. Throwing up a protectionist wall to block globally-provided reinsurance is a risk that US businesses cannot afford, and would invite trade retaliation against the US from our largest trading partners.”
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 www.keepinsurancecompetitive.com
Image Credit: Wikimedia Commons