The Center Square
by John Haughey
September 16, 2021
(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.”