Coalition for Competitive Insurance Rates lobbies congress prior to hearings on protectionist legislation

A bill to raise taxes on foreign insurance companies in the US has been labelled “anti-consumer and anti-competitive” by the Coalition for Competitive Insurance Rates (CCIR).

The CCIR, a broad-based alliance dedicated to assuring competitive insurance costs and insurance availability for American consumers, believes that the bill would drive up consumer insurance rates by reducing competition as well as US insurance capacity.

The tax bill was put forward by Representative Richard Neal, who attempted to introduce similar legislation in the 110th Congress. At that time, consumer organisations and businesses successfully opposed its passage.

Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers, and a CCIR member, said: "We urge members of Congress to reject this legislation, as they have twice before.

“Only a handful of very large, very profitable US insurance companies would benefit from this bill. In contrast, the economic data make clear that American consumers and businesses would pay a steep price if Representative Neal’s proposal becomes law. This legislation represents a punitive and unnecessary tax aimed at benefiting some competitors at the expense of others."

A study by the Brattle Group, an economic consulting firm based in Cambridge, Massachusetts, found that the proposed legislation would cost consumers more than $10bn per year and would reduce US reinsurance capacity by 20%.

A statement from the CCIR said: “The effects would be felt most significantly in disaster-prone states like Florida, Louisiana and California.

“Insurers and consumers in these areas say that the Neal bill puts their states at risk. The Brattle Group study was co-authored by Temple University and Wharton School’s Dr David Cummins, who has been rated the number one researcher in the world on risk and insurance.”

The statement adds: “Rep Neal’s bill would significantly increase taxes on all foreign insurers who have US subsidiaries and who provide vital insurance and reinsurance coverage to Americans. Because insurance is indisputably a global marketplace, the US insurance market depends heavily on a worldwide network of foreign and domestic reinsurance companies in order to meet the country’s insurance capital needs. This is best illustrated by the fact that approximately two-thirds of all reinsurance required to protect US consumers and businesses against natural disasters is provided for by non-U.S. reinsurance companies.”

South Carolina director of insurance Scott Richardson said: “Consumers benefit from a competitive insurance marketplace. Coastal areas such as South Carolina’s are dependent on a maximum capacity of reinsurance. We believe this bill will restrict the market and ultimately raise prices for South Carolina citizens. Recent studies have shown that the results of this legislation could cost South Carolina residents more than $40 million a year. In addition, it would dislocate the market and create distinct advantages for some carriers over others, and that is not in the best interest of consumers.

Dale Hammond, president and CEO of Homewise Insurance in Tampa, Florida, said: “The United States overall, and Florida specifically, requires a large amount of catastrophe reinsurance capacity, a substantial part of which is supplied by non-US reinsurance companies. Driving out competition would increase the upward pressure on insurance rates in Florida and throughout the US – at exactly the wrong time.”

Earlier this year, the Senate Finance Committee received nearly 40 individual opposition letters in response to a staff draft of legislation similar to the Neal bill. Organisations and individuals, including state insurance regulators, consumer groups, state legislators, trade policy experts, European governments and business owners also expressed their opposition to the proposal.

“The international insurance market is an essential component of our ability to provide protection to homeowners and businesses," said Bill Newton, executive director of the Florida Consumer Action Network. “We believe this tax increase proposal would in all likelihood have adverse consequences for consumers. Given today’s financial and economic conditions now is certainly not the time to make access to insurance more costly."

Joseph Restoule, president of the Risk & Insurance Management Society (RIMS), said: “Legislation that encumbers the free market movement and the transfer of risk that are vital to a sound global insurance and reinsurance community will adversely affect America’s commercial insurance purchasers. A free and fair marketplace enables the insured and insurers to seek innovative and affordable alternatives to manage risk. This legislation would drive up the cost of insurance for America’s commercial insurance consumers by reducing competition."

Opponents of the bill say that this legislation is especially unnecessary because foreign-based insurers are already subject to a US insurance excise tax and their US subsidiaries pay US income taxes.

Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, said: “Rep Neal’s bill is a protectionist measure that will hurt American consumers. It is likely to send insurance rates soaring for the very consumers who can least afford big rate increases right now.”

The Coalition for Competitive Insurance Rates has submitted three letters to Congress in opposition to what it calls “discriminatory reinsurance tax proposals”. The Coalition is made up of business organisations, consumer advocacy groups, insurers and their associations.