Global tax plan deemed contrary to US interests
Efforts to combat a global tax plan that threatens Bermuda’s interests received help with a key expert publicly explaining how proposed measures would also be contrary to the interests of American homeowners, particularly in coastal states like Florida.
And the Association of Bermuda Insurers and Reinsurers agreed that the proposed changes would hit homeowners and businesses, especially in Florida, Texas and Georgia.
Their direct interest is that member companies in Bermuda are among the world’s leading reinsurers who provide the needed catastrophe reinsurance for American insurers.
But a former Florida Insurance Commissioner and one of America’s experts on insurance and regulation, Kevin McCarty, is now on record in a just-published op-ed also opposing the initiative, because, he says, it would have the unintended consequence of adding further pressure to the affordability and availability of property insurance in the state.
Florida’s vulnerability to frequent hurricane activity has already crippled the market.
At least 54,000 Florida homeowners have just had their insurance companies drop their coverage this year.
Since February, four companies – citing enormous losses – have asked Florida officials to let them cancel or not renew customer policies.
Meanwhile, the initiative to emplace a new global tax system aimed at capturing a larger share of tax revenue from the world’s largest multinational corporations was raised from the dead with US president Joe Biden’s Made in America tax plan.
Until then, America and other OECD (Organisation of Economic Co-operation and Development) countries were rarely on the same page when it came to moving forward in global tax planning for corporations.
But Biden’s plan includes a provision that would impose a 15 per cent minimum corporate tax rate. Last month, 130 countries agreed to it. The OECD thinks it will bring $150 billion annually to cash-strapped countries.
Surprisingly, Biden’s proposal also won the backing of China, Russia and India – countries previously difficult to please in this initiative.
But the op-ed in Insurance Journal penned by McCarty states: “Often times, well-intentioned but ill-conceived public policy can exacerbate an already strained system.
“The last thing Americans needs right now is a policy initiative that throws insurance markets into a maelstrom, but that is exactly what an obscure (until recently, at least) provision of the Biden Tax Plan threatens to do.
“Derisively dubbed the “Hurricane Tax,” the president’s plan includes a proposal to increase tax rates on reinsurance.
“As readers of Insurance Journal know, insurance companies buy reinsurance on high-risk policies, often on the international market.
“Under the Biden plan, taxes on this reinsurance would increase, which would, inevitably, be passed down to consumers.
“This situation is bad enough in places that are not susceptible to major weather. But in Florida, the pain could be particularly acute.
“Of course, elsewhere in the country, there are different risks – fires in the west, snowstorms in the north, severe weather in the heartland. They would all feel it, one way or another, through insurance premium increases.
“During my 13 years as Florida Insurance Commissioner, and since then, I have seen the impact of failed public policy – and the proposed Hurricane Tax is particularly egregious.”
McCarty says the effects of this tax would be far reaching, and not limited to property insurance.
He said private mortgage insurance used by first-time homebuyers – faces the same types of rate increases.
McCarty is also a former president of the National Association of Insurance Commissioners.
He is currently a consultant and founder of Celtic Global Consulting which counts insurance companies among its clients.
Meanwhile, the Association of Bermuda Insurers and Reinsurers agrees the tax changes would drive up costs.
In reacting to the rising concern, an Abir statement said this weekend: “Bermuda’s re/insurance industry has a vital role to play in underpinning the economic health of communities worldwide, particularly in disaster-prone areas such as US coastal states but increasingly others, as the effects of climate change play out. “Re/insurance protects homeowners and businesses from economic devastation and provides much needed capital for regeneration in the aftermath of flood, hurricane, tornado, wildfire and other climate-related events.
“The proposed tax changes, if enacted, will almost certainly have a domino effect on industry costs, supply chains and ultimately, communities, resulting in higher costs to homeowners and businesses particularly in coastal states such as Florida, Texas and Georgia.
“There is also a social cost – young people as first-time home buyers and minority communities, who rely on affordable mortgage insurance to get a foot on the ladder, are likely to be the hardest impacted.
“Tax changes don’t happen in isolation. As global citizens, we have a duty to carefully consider any tax fallout on the affordability of insurance and the need to protect vulnerable communities from rising climate-change risks.”
Also raising concern is Jerry Theodorou, the Director of the Finance, Insurance and Trade Policy Program for the research group, R Street.
He develops and advances effective free market public policy solutions to complex issues where federal and state governments have intervened.
Previously, he was a Director in insurance research at the global investment management firm Conning, in Hartford, Connecticut.
His recent analysis stated: “A poorly-understood feature of the Biden plan penalises the global reinsurance industry, which would make property insurance more expensive, especially for homes and businesses in Florida, where premiums are already rising steeply.
“The plan functionally introduces what may be viewed as a “hurricane tax”. Raising corporate taxes and introducing new rules impacts international financial transactions, which increases the cost of reinsurance and adversely impacts primary insurers and buyers of homeowner’s insurance, especially in catastrophe-prone areas.
“Insurers and their customers should be concerned because homeowners in states like Florida are already seeing rate-driven double-digit premium increases.”
R Street Institute is a nonprofit, nonpartisan, public policy research organization engaging in policy research and outreach to promote free markets and limited, effective government.
In addition to headquarters in Washington D.C., they have offices in Georgia, Texas, Ohio and California.