By Robin Westcott
As appeared in The Daytona Beach News-Journal, the Pensacola News Journal, the Tallahassee Democrat and the Ocala Star Banner.
Thursday marks the start of hurricane season — a date Floridians know well.
But as meteorologists keep a watchful eye on the Atlantic and Gulf Coasts this summer, my attention will be focused on Washington, where a powerful storm of legislation is brewing that would make it more difficult to obtain and afford the insurance we need to stay protected against natural disasters.
Almost 25 years ago, Hurricane Andrew changed the face of the insurance marketplace in a dramatic way. Up until that point, neither consumers nor insurance companies understood the catastrophic risk exposure to our state. Insurance companies failed and many large insurance companies retreated or significantly reduced their exposure in Florida. A new Florida domestic homeowners market and our own Florida Hurricane Catastrophe Fund were born in the wake of Hurricane Andrew. While time does have a way of erasing our memories, Florida endured the four storms of the 2004 season and these new companies and the CAT Fund came through battered but withstanding the unrecognized risk of having a year with multiple catastrophic events. Part of the reason that this market survived and continues to prosper has been because of private international reinsurance. In fact, 91 percent of private insurance for Florida homeowner insurers is from international reinsurers. Now, two proposals that may be included in upcoming corporate tax reform plans seek to shrink Florida’s insurance and reinsurance market, leaving our state’s consumers with higher costs for the same insurance coverage.
One proposal, crafted by U.S. Rep. Richard Neal, D-Mass., and introduced in previous Congresses and in past administration budget messages, would deny tax deductions unfairly to domestic insurers for certain reinsurance premiums paid to foreign-based affiliates. The other proposal is the border-adjusted tax featured in the House Ways and Means Committee Chairman Kevin Brady’s (R-Texas) Blueprint for Tax Reform. If applied to international reinsurance, this proposed law would dramatically reduce the supply and increase the price of reinsurance upon which Florida’s economy depends.
Florida TaxWatch, an independent nonprofit taxpayer research institute, recently released a study that found that a 20 percent border-adjusted tax, if applied to international reinsurance, could directly cost policyholders between $430 and $910 more per year. The tax would increase the cost of commercial and residential property insurance in Florida by $1.4 billion to $2.6 billion annually. The effects of this extra burden would be immediate and severe. It would reduce economic activity by $2.8 billion to $5.0 billion, worker earnings by $1.4 billion to $2.6 billion and employment by approximately 42,800-77,400 jobs.
In the face of the existing crisis around the assignment of benefits issue — which will also operate to push insurance premiums up — Floridians cannot afford a proposed tax increase that will more than likely make insurance too expensive for existing homeowners and business owners, will make home ownership unaffordable in our recovering housing market and push new businesses away from opening and existing businesses from expanding,
Global insurers and reinsurers play a significant role by diversifying catastrophic risk globally, leading to lower prices and more coverage. This benefits the state and national economy. Foreign insurers and reinsurers have a long history supporting our state in the wake of hurricanes. Simply put, our current Florida insurance marketplace cannot exist without it. The proposed tax increase will go to Florida’s bottom line, increasing rates and undermining our insurance marketplace.
Our system is not perfect. But Floridians cannot afford to lose the stability we have gained through managing our risk with the very important tool of international reinsurance.
The 2016 Atlantic hurricane season was the first above-average season since 2012. As we prepare for this year’s wave of storms, I urge Florida’s congressional delegation, including Sens. Bill Nelson and Marco Rubio, to oppose misguided and discriminatory proposals that leave our state vulnerable to higher insurance prices.
Westcott was formerly the director of insurer solvency and acting deputy insurance commissioner, property and casualty, with the Florida Office of Insurance Regulation. She served under CFO Jeff Atwater as Florida’s insurance consumer advocate.