We are in the second month of the 2013 Atlantic Hurricane Season, and Insurance Journal predicts that there is a 71 percent likelihood of a hurricane making landfall on the Eastern Seaboard and a 50 percent probability of a direct hit here in Florida.
As Florida consumers prepare for the worst, politicians in Washington should be helping Floridians to get ready for rebuilding efforts, not proposing punitive tax increases on the insurance we need to recover from hurricanes and other violent storms. Bear in mind the Florida Consumer Action Network (FCAN) is no friend of the insurance industry - we're not protecting them. This is about consumers.
Unfortunately, legislation has been introduced that would impose a costly tax increase on the international insurance companies that provide almost two-thirds of the backup coverage - reinsurance - throughout the nation and much of the home and business property insurance here in Florida. Moreover, the president has even included this tax increase in his current budget proposal.
This proposed tax increase on overseas reinsurers would drastically decrease insurance capacity in this country, while driving up the cost of insurance for homeowners, business people, and other consumers, especially in states such as Florida that are vulnerable to natural disasters. By shifting the financial burden of rebuilding after a disaster onto already strained domestic insurers and their policyholders, this special tariff would seriously disrupt insurance markets while failing to raise revenue in any significant way.
In a study of the economic impact of an earlier version of the Neal-Menendez bill, the Brattle Group of Massachusetts, a leading economic consulting firm, found the proposed tax would reduce the net supply of reinsurance in the United States by 20 percent.
According to Brattle, because of the basic economic principal that reduced supplies mean higher prices, the increased taxes and diminished insurance capacity would force American consumers to pay between $11 billion and $13 billion more a year for the same level of coverage that they currently have.
Here in Florida, the Brattle Group study estimates that Florida consumers would see their insurance bills increase by more than $817 million a year, with homeowners insurance costs going up by 4.2 percent and commercial insurance costs soaring by 12.6 percent. We can't afford it.
For Floridians, this tax increase would take a toll on our tentatively recovering housing and job markets. Today one of every 302 Florida houses faced foreclosure - almost three times the national average. Disrupting the progress we have made thus far in terms of recovery, especially in Florida which in May led a list of states with the highest home foreclosure rates, is irresponsible and unfair to Floridians.
Meanwhile, an estimated 680,426 Floridians were unemployed in April - the most recent month for which complete statistics are available. If Florida's businesses and homeowners are socked with this special tax increase on insurance, there will be severe consequences for unemployment and foreclosures.
While this proposed tax increase ostensibly targets international companies, American consumers need a robust insurance market, open to as many consumers as possible. Global reinsurers play an important part in our economy because they are financially strong and can fill the gaps in coverage that are created when domestic insurance companies struggle to cope with the influx of claims after a disaster.
Indeed, the logic of international risk-sharing is clear and compelling: Because we can pool US hurricane and earthquake risks with the risks of typhoons in Japan and earthquakes in Latin America, coverage costs American consumers much less than it would without global reinsurance.
This conclusion is confirmed by recent experience. When Hurricanes Katrina, Rita and Wilma hit the Southeastern states in 2005, more than 60 percent of the payments came from foreign insurers and reinsurers. Similarly, international reinsurance companies are expected to cover almost 50 percent of the losses from Hurricane Sandy last year.
Since we live in a state which concentrates insurance risk within state borders, which places a financial burden on the backs of Florida consumers, FCAN will continue to push spreading Florida's risk through private reinsurance, as long as they are willing and able to handle our hurricane risk. It is for that reason that I urge Florida's congressional delegation to oppose this punitive and protectionist tax increase.
Bill Newton is executive director of the Florida Consumer Action Network.