Biden ‘hurricane tax’ could boost Floridians’ property insurance $300 each year

The Center Square
by John Haughey
September 16, 2021

A view of Deerfield Beach, Fla., on Saturday, Aug. 1, 2020, as then-Hurricane Isaias tracked toward Florida. mpi04/MediaPunch / AP

(The Center Square) – Ballooning reinsurance costs, “loss creep” from 2017-18 hurricanes, coastal flooding and excessive litigation costs are among converging “perfect storm” factors that are hiking Florida property insurance renewal rates by 30% to 40%.

According to a 12-page analysis by the R Street Institute published last week, a provision of President Joe Biden’s proposed ‘Made in America Tax Plan’ (*MATP) being debated in Congress could add to that increasingly expensive pain for all 6.5 million Florida residential and commercial property owners.

R Street Institute, a Washington-based nonpartisan research nonprofit, projects that under Biden’s plan, property insurance costs would increase nationwide by $10.8 billion to $20.3 billion a year.

In Florida, R Street forecasts property insurance costs would increase between $864 million and $1.62 billion a year and cost $170 to $319 per property annually.

The MATP increases the corporate tax rate from 21% to 28% and implements a global minimum tax (GMT) regime with proposed rates from 15% to 28% on international reinsurers.

“The first rule will directly increase the cost of providing insurance by increasing the tax burden on U.S. insurers. The second provision will increase the cost of insurance indirectly, by increasing the tax expenses of international reinsurance companies, which provide much of the capital for U.S. risks and are often located in low-tax jurisdictions,” the analysis states.

Florida’s insurance structure is based on “reinsurance,” essentially insurance for insurers because large corporate insurers abandoned the state following the 2004-05 hurricane seasons.

The approximately 60 independent private insurers operating in Florida are thinly capitalized. Many rely on private capital from overseas hedge funds and other sources – or “reinsurance” – that essentially gamble against hurricanes.

After a decade without a landfall hurricane, 2017’s Hurricane Irma caused $17 billion in damage and 2018’s Hurricane Michael $12 billion, ending an era of “soft pricing.”

Because Florida allows claims to be filed three years after an event, reinsurers are hedging bets by requesting carriers raise rates between 25-to-45% to account for “loss creep” from 2017-18 storms.

“As these tax increases are passed through to consumers, they will effectively tax everyone who buys insurance, regardless of income,” R Street Institute Director of Finance, Insurance and Trade Policy Jerry Theodorou said. “Though these changes will affect the cost of insurance for all U.S. consumers, the price increases will be largest for those living in areas exposed to catastrophe losses (e.g., hurricanes, earthquakes, tornadoes, floods and wildfires).”

The Florida Chamber, Florida Association of Insurance Agents, Florida Alliance for Consumers and Taxpayers, Federal Association for Insurance Reform and other organizations are lobbying Florida’s congressional delegation to oppose the reinsurance provisions of the MATP.

Stronger Safer Florida, “a nonpartisan coalition comprised of businesses, consumer and environmental groups from throughout Florida,” has emerged to spearhead the effort against MATP’s reinsurance provision.

Stronger Safer Florida maintains MATP’s hefty tax hikes will discourage global hedge funds and other investors – who diversified risk – from buying insurance, particularly catastrophe, property and casualty insurance and make property insurance in Florida even less affordable while.

Under the MATP, internationally based reinsurers who’ve paid out billions to cover damages “would face hefty tax increases through Biden’s proposed ‘hurricane tax,’” the group states.

Internationally based reinsurers help to diversify risk outside of Florida, Stronger Safer Florida said, which alleviates financial damages as the state rebuilds following a catastrophe or natural disaster.

Biden’s “proposed ‘hurricane tax’ could leave Floridians more vulnerable to covering natural disaster costs when a storm hits,” it said. “Biden’s ‘Made in America’ tax plan will negatively impact residents of the Sunshine State by wrongly punishing reliable insurance partners.”

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Mark Tomes
Trusted Member
Mark Tomes(@mtomes)
2 years ago

These “reliable insurers” bought up traditional insurance companies, stripped them of much of their assets, and pocketed billions of dollars of profit, all of the consumers’ expense. A state-run or federally-run insurance program would be much more effective ensuring against catastrophic losses and would keep consumer prices down, as long as insurance company lobbyists aren’t allowed to mess with the legislation.

Barnes Moore
Barnes Moore(@barnes-moore)
2 years ago
Reply to  Mark Tomes

Evidence of your assertions? And we all know how efficient state and federal agencies are run. They never go over budget and never grow beyond their initial mandate, right?

Elizabeth Huben
Elizabeth Huben(@betsie-huben)
2 years ago

Wondering if this will only apply to Florida? Seems like plenty of hurricanes hit states along the Gulf coast as well as the Carolinas far more frequently. Will California and other states out west be subject to a fire insurance program under this program?

Robert Warner
Robert Warner (@guest_62566)
2 years ago

Hurricane and Flood Insurance (as applied to Florida risks) are uniquely local. We are now confronting a different Flood risk assessment methodology – not to our advantage. Insurance has long been a monopoly – and protected from the competition of interstate competitors by the McCarran-Ferguson Act. It’s why we have special assessments on our Florida policies. Health insurance operates essentially in the same way. “Free markets” here do not exist. https://content.naic.org/cipr_topics/topic_mccarranferguson_act.htm

Joseph Kayne
Joseph Kayne(@jay-kayne)
2 years ago

Ms. Huben, I think you are mistaking the current administration with the last which openly proposed policies to hurt blue states (e.g. SALT deduction on income tax). Specific to this issue, fire is generally covered under homeowners insurance per information available on insurance.com: “Homeowners insurance typically pays out more money for fire, lightning and debris removal claims than any other loss type, including body and property damage, according to the Insurance Information Institute.”

This is different from many private insurer policies which have higher deductibles for hurricane damage. Or maybe you expect private insurers to eat the claims payouts associated with more severe storms. NOT. You want lower hurricane insurance premiums? Write your representatives to stop denying “climate change” and do something about it.

Ron Barone
Ron Barone (@guest_62565)
2 years ago

Voting has consequences!

Justin Esp
Justin Esp (@guest_62569)
2 years ago
Reply to  Ron Barone

Just ask women in Texas!