NU Online News Service, May 4, 2:36 p.m. EDT
WASHINGTON--A research firm's finding that closing a tax loophole for offshore insurers could cost U.S. insurance consumers more than $10 billion per year has been attacked as flawed by the Coalition for a Domestic Insurance Industry.
The study was released Friday by the Cambridge, Mass.-based Brattle Group, and drew the support of the Risk and Insurance Management Society, which was part of a group that commissioned its work.
It was released in anticipation that legislation that would close the loophole will be introduced later this month by Rep. Richard Neal, D-Mass., chairman of the powerful Select Revenue Measures Subcommittee of the House Ways and Means Committee and a long-term opponent of the loophole.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, issued an exposure draft of legislation that would close the loophole last December as a way of gauging public support for closing it. But most of the commentators who responded voiced opposition to changing current law.
The U.S. Coalition charged that the study reached "erroneous conclusions." It was commissioned by the Coalition for Competitive Insurance Rates, of which RIMS is a member. It is financed by the group of foreign insurers that includes the ACE Group, Allianz Insurance Group and Zurich Insurance Group.
The study analyzed the economic impact of imposing higher taxes on foreign-owned insurance and reinsurance providers, and concludes that closing the loophole would cost consumers an additional $10-to-$12 billion per year to maintain their current insurance coverage.
Additionally, it argues that the legislation, if enacted, would significantly weaken competition and reinsurance capacity in the U.S.--by 20 percent, the study said.
"Past evidence in insurance markets indicates that when reinsurance capacity is reduced, consumers will find it difficult to obtain insurance in certain classes of business," the study concluded.
The report also said closing the loophole would reduce the supply of primary insurance in the US by 1.8-to-2.1 percent and increase the price of primary insurance by 1.8-to-2.1 percent overall, and by more than 16 percent in some lines of business.
But the Coalition for a Domestic Insurance Industry--led by W.R. Berkley Corporation, Chubb Corporation and the Hartford Insurance Group--said conclusions that a tax change would be punitive to foreign insurers and adversely affect the U.S. insurance marketplace "are untrue and do not reflect marketplace realities."
The group said the proposed Neal bill does not penalize any market participant and "merely seeks to level the playing field by taxing foreign-owned groups writing direct insurance business in the U.S. similar to the way domestic insurers are taxed."
The said the proposed Neal bill "expressly provides an election to be taxed identically to a U.S. company with respect to such business."
"There is nothing punitive or unfair about the uniform treatment of all insurers writing business in the U.S.," the domestic coalition said in its statement.
RIMS representing U.S. commercial insurance buyers called the Brattle Report a "clarion call to members of Congress and the administration who might support such legislation under the guise of protecting American insurers."
Deborah M. Luthi, a member of the RIMS board and director of enterprise risk management services at Matheson, added that "RIMS believes that this report provides well-documented evidence of the detrimental impact to the global insurance market, domestic property and casualty insurance market, insurance consumers, and several states that may be prone to one or more natural disasters."
"This study confirms the fears of the nearly 40 independent experts, state government officials, business owners and associations who publicly filed opposition letters to legislation pending in Congress," according to Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR).
"This legislation imposes an unnecessary and costly tariff on companies that help spread insurance risks for consumers and businesses in areas subject to hurricanes, earthquakes, crop failures and other forms of natural disasters," he said.
"When insurance is needed to cover billions of dollars in consumer property damage--as occurred following hurricanes Katrina and Rita--international reinsurance companies are there," he added.