WASHINGTON, March 4, 2014 /PRNewswire/ -- The Coalition for Competitive Insurance Rates (CCIR), the leading voice for continued and increased competition within the insurance industry, today objected to a proposal within the Obama administration's FY 2015 Budget that would deny a tax deduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers.
The president's budget proposal closely resembles legislation (H.R. 2054 and S. 991) introduced by Reps. Richard Neal (D-MA) and Bill Pascrell (D-NJ) and Sen. Robert Menendez (D-NJ) in the 113th Congress, which, according to a previous analysis, will drastically raise insurance rates across the country. The Brattle Group, a leading economic consulting firm, found in an economic impact study of the past proposals that the proposed tax would reduce the net supply of reinsurance in the United States by 20 percent. This would force American consumers to pay a total of $11 to $13 billion more per year for the same coverage they currently have.
"The president's proposed tax on foreign affiliate reinsurance would only serve to limit US insurance capacity and drive up the cost of insurance -- a major threat to homeowners and small businesses, particularly those in disaster-prone states such as Louisiana," Louisiana Commissioner of Insurance James Donelon said. "Whether our nation faces earthquakes in California or hurricanes on the Gulf Coast, global reinsurance can provide US coverage for less than it would cost without reinsurance because risk is pooled to gain diversification."
Commissioner Donelon is among a growing list of consumer advocates, state officials, risk specialists, insurance industry experts, trade negotiators, business organizations and many others that have publically opposed a tax on foreigner reinsurers. The list includes insurance regulators from Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Pennsylvania; agriculture commissioners from Florida, Tennessee and Texas; and, Florida Governor Rick Scott and Georgia Lieutenant Governor Casey Cagle.
Many opponents of the proposed tax cite the recent role of foreign reinsurance in the wake of Hurricane Sandy: losses from Sandy currently stand at more than $19 billion with international insurance companies expected to cover nearly 50 percent of the losses.
"A robust insurance market open to as many competitors as possible is essential to consumers," Executive Director of the Florida Consumer Action Network Bill Newton said. "The president must weigh the unintended consequences of a tax on foreign reinsurers, such as passing higher insurance rates down to policyholders, and also recognize the outpouring of consumer opposition."
In Florida, 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 per year in added costs for Florida businesses. Further, the price of Homeowners Multi-Peril insurance would go up by 4.2 percent, resulting in $266 million per year in added costs for Florida families.
"Instituting this tax would significantly reduce the supply of reinsurance in the United States and decrease America's ability to manage volatile, catastrophic insurance risk," President of the Risk and Insurance Management Society (RIMS) Carolyn Snow said. "These proposals are isolationist measures aimed at benefiting some competitors in the market at the expense of others."
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
Emily Flynn Pappas