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Sun Sentinel: Proposed tax would make insurance even costlier

Wednesday, October 10, 2012

Twenty years ago, Hurricane Andrew hit Florida with wind speeds averaging 145 miles per hour, eventually destroying some 63,000 homes and damaging 82,000 businesses, more than 32,000 acres of farmland, 59 healthcare facilities and 31 public schools.

The costliest natural disaster in U.S. history at that time — and second only to Hurricane Katrina even now — Hurricane Andrew resulted in $15.5 billion in insurance claims payouts ($25 billion in 2011 dollars).

Revealing that the Sunshine State was even more vulnerable to hurricanes than had been believed, Hurricane Andrew forever changed how Florida insures itself against extreme weather events. The eight hurricanes of 2004 and 2005 drove the point home again.

International reinsurers provide about 90 percent of the private back-up coverage for domestic home insurers throughout the state. In 2005, these international reinsurers paid 50 percent of the losses for hurricanes Katrina, Rita and Wilma.

In addition to the ever-present threat of hurricanes, another destructive development is imperiling Florida homeowners and businesses. U.S. Rep. Richard Neal (D-MA) and Sen. Robert Menendez (D-NJ) are working together on legislation that would impose costly new taxes on the very insurance companies that provide the reinsurance that is indispensable for Florida’s residential and commercial properties

In a study of an earlier version of the Neal-Menendez bill, the Brattle Group, a leading economic consulting firm based in Boston, found that foreign reinsurers account for two-thirds of U.S. property catastrophe reinsurance. Targeting these global insurance companies for special punitive taxes would be disastrous for homeowners, businesses and the economy in Florida and across the nation. The Brattle Group concluded that the proposed tax would reduce the net supply of reinsurance in the U.S. by 20 percent.

As we learn in Economics 101, when you reduce the supply of something, you raise its price. Therefore, the Brattle Group estimates that the special tax would increase the price of insurance in the U.S. by 2.1 to 2.4 percent and as much as 9 percent in some lines of business. Across the country, in order to obtain their current levels of coverage, consumers would have to pay a total of $11 to $13 billion more annually.

Here in hurricane-prone Florida, the tax would hit hard at homeowners and businesses. The price of Homeowners Multi Peril insurance would soar by 4.2 percent, resulting in $266 million a year in added costs for Florida families, while the price of Commercial Multi Peril Insurance would skyrocket by 12.6 percent for $264 million a year in added costs for Florida businesses.

With Florida having the highest mortgage delinquency rate in the country at 13.48 percent, as well as an unemployment rate of 8.6 percent compared to the national rate of 8.3 percent, these price hikes on hurricane insurance would increase the uncertainty in our already shaky economy. Our hard-pressed homeowners and our hard-working entrepreneurs and employees deserve better.

Florida’s former CFO has also expressed concerns with this legislation in the past months. “With all the problems in the job market and the housing market, we need to make sure Floridians can earn their livings, build their businesses and protect their homes,” said Alex Sink. “The bottom line is, this proposed tax would make insurance more costly for hard-pressed homeowners and small-business people.”

Floridians should ask their Congressional members to oppose this special punitive tax. On the twentieth anniversary of Hurricane Andrew, we don’t need a perfect storm of higher taxes and higher insurance costs.

Sandra Mortham is former Republican Leader, Florida House of Representatives and Secretary of State.

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