Congress should reject the ‘border-adjustment’ tax increase on hurricane insurance
It’s June 1, that dreadful day all Floridians know and fear — it marks the official start of hurricane season.
Almost 12 years after Hurricane Katrina hit Miami, my memories are still fresh. Our community was flooded, trees and power lines were knocked down, and some 1.4 million people were left without electrical power.
As mayor of Miami, I worked night and day to restore basic services and later to help families, businesses, and communities to get back on their feet. Hurricanes Wilma and Rita later would ravage the Southeastern and Gulf Coast states.
Congress is going to consider a tax increase on the international insurers that helped our region rebuild and recover from these horrific hurricanes. This tax targets reinsurance — backup coverage — that is obtained outside the United States. By soaking up financial resources that would otherwise be available for capital investment and consumer spending, this tax would discourage economic growth, business starts, expansions, and job creation in our major metropolitan areas.
As city officials across the country prepare for the U.S. Conference of Mayors’ annual meeting in Miami Beach in June, they should remember the catastrophes in their communities, from hurricanes and floods to earthquakes and acts of terrorism. And they should the reject the threat that border adjustment — the House Republicans’ initiative to tax imports and subsidize exports — will be incorrectly applied to overseas insurers.
Reinsurance is important because it transfers risks for insurers, allowing them to protect homeowners and businesses in high-risk areas such as South Florida. Tapping global markets means we can balance the risks of disasters all over the world, from flooding in the Southeastern states to earthquakes in Japan. U.S. mayors understand that major hurricane or earthquake events should not be paid for solely by their own constituencies — these costs should be distributed globally to reinsurer shareholders around the world.
Americans account for about half the worldwide demand for reinsurance, and we buy more than half of our backup coverage from foreign sources. In Florida, 91 percent of the reinsurance for homeowners is from foreign sources.
After the “terrible trio” of hurricanes Katrina, Wilma and Rita hit Florida, Louisiana, Texas, Mississippi, and Alabama — and, specifically, the cities of Miami, New Orleans, Houston, and Galveston — non-U.S. insurers and reinsurers provided more than 60 percent of the $68 billion in payments. When Hurricane Sandy struck New York and New Jersey in 2012, flooding New York City’s subways, almost half of the almost $19 billion in payments came from foreign sources.
Similarly, following the terrorist attacks in New York City in 2001, 64 percent of the estimated $27 billion in U.S. payouts for the claims came from overseas insurers and reinsurers. For many major cities, the risks run well beyond hurricanes, floods and acts of terrorism. Los Angeles and San Francisco must reckon with the risks of severe earthquakes, such as the Northridge Earthquake in 1994, which caused $17 billion in insured losses.
A study released by Florida TaxWatch in March found that a 20 percent border-adjusted tax on insurance and reinsurance would have direct and drastic effects on Florida’s economy. The proposal would cut between 42,800 to 77,400 jobs; slash worker earnings by $1.4 billion to $2.6 billion; reduce economic activity in Florida by $2.8 billion to $5 billion; and inflict long-term damage on Florida’s economy.
With less backup-up coverage available, consumers would have to pay $5 billion more per year for their current level of coverage. In Florida, homeowners would have to pay $282 million more per year for basic insurance, while businesses would have to pay an extra $367 million.
According to a recent forecast by the National Oceanic Atmospheric Administration, the 2017 Atlantic hurricane season is forecast to be more active than normal. As we prepare for this above average season, I urge Florida’s congressional delegation, including Sens. Bill Nelson and Marco Rubio, to oppose tax increases on the insurance that allows Floridians to buy homes, build businesses, generate jobs, and raise their families.
Manny Diaz was Miami mayor from 2001-2009; president of the U.S. Conference of Mayors in 2008, and served as a founding board member of the Florida Residential Property and Casualty Joint Underwriting Association, now known as Citizens Property Insurance.