Warner-Neal Foreign Reinsurance Legislation Opposed by Bipartisan Coalition
Bills would stifle competition and consumer access to affordable insurance
Sep 29, 2016, 01:23 ET
WASHINGTON, Sept. 29, 2016 /PRNewswire/ -- The Coalition for Competitive Insurance Rates (CCIR), the leading voice for continued and increased competition within the insurance industry, today vocalized their disapproval of legislation introduced by Sen. Mark Warner (D-VA) and Rep. Richard E. Neal (D-MA) (S. 3424 and H.R. 6270) to raise taxes on foreign-based companies providing reinsurance to US affiliates. Despite strong opposition from concerned insurers, business, industry and consumer groups and elected officials, this legislation marks the fourth time Rep. Neal has sought to impose this special punitive tax.
"Foreign-owned reinsurers don't enjoy any US tax loopholes," said Tom Feeney, president and CEO of Associated Industries of Florida. "Right now, the US subsidiaries of these companies are subject to the same income tax laws as their US-based competitors – there is no differential or preferential treatment. By limiting US domestic insurance capacity, Sen. Warner and Rep. Neal will only succeed in driving up costs, placing a huge burden on homeowners and businesses, particularly those in areas that are vulnerable to devastating weather events or other significant catastrophes."
The legislation introduced by Sen. Warner and Rep. Neal would defer or deny a deduction for certain reinsurance premiums paid by a US insurer to an international affiliate by imposing an unnecessary and costly tariff on the companies that help spread insurance risks globally – unduly harming American consumers and businesses. A 2015 report issued by the Tax Foundation on the consequences of a tax on the foreign reinsurance industry found that United States' GDP would experience $1.35 billion in losses over the long term, which is approximately twice the revenue it would collect. In an economic impact study of previously introduced legislation by Rep. Neal, the Brattle Group, a leading economic consulting firm, found such legislation would reduce the net supply of reinsurance in the US by 20 percent, forcing American consumers to pay a total of $11 to $13 billion a year more for their same coverage.
Recognizing the economic disadvantage of this and similar legislation, state and federal officials from across the political spectrum have spoken out against reinsurance tax proposals. Current and former state insurance commissioners representing Florida, Georgia, Louisiana, Mississippi, Nevada, North Carolina, Pennsylvania, South Carolina and Utah have publicly criticized the measures, as have agriculture commissioners from Florida, North Carolina and Tennessee, and Florida Governor Rick Scott.
"A tax on affiliate reinsurance will stifle innovation in an important industry and drastically reduce competition in the marketplace," said Pete Sepp, president of the National Taxpayers Union. "American consumers and companies benefit from a competitive, secure insurance market, as do taxpayers. Global reinsurers are financially strong and have substantial capacity to support US insurance companies, allowing our communities to recover more quickly from disasters with fewer government aid dollars."
Overseas reinsurance companies are the largest providers of US property catastrophe reinsurance and also provide catastrophe-exposed insurance via US subsidiaries. Foreign reinsurers paid nearly 50 percent of the estimated $19 billion in losses incurred from Hurricane Sandy; an estimated 85 percent of privately insured crop losses resulting from the 2012 drought (approximately $1.2 billion) were paid by international reinsurers; and, in the aftermath of the 2001 terrorist attacks on New York, international insurance and reinsurance firms paid 64 percent of the estimated $27 billion in US payouts for the claims.
"Over the years, international insurance companies and their US subsidiaries have supported the US in the wake of our nation's most tragic and costly disasters," said Eli Lehrer, president and co-founder of the R Street Institute, a free-market think tank. "If affiliate reinsurance is taxed at a higher rate, companies may substitute non-affiliate reinsurance or reduce their US customer base. And, if the available supply of reinsurance shrinks, or markets become less competitive prices will rise – a losing equation."
The Warner-Neal legislation closely resembled a provision in President Obama's FY 2017 budget that would deny a routine business tax deduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers – the seventh attempt by the president to introduce this specific budget recommendation.
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.
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SOURCE The Coalition for Competitive Insurance Rates (CCIR)