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and reliable insurance industry is more important than ever. From hurricanes and windstorms to industrial accidents and acts of terrorism, we know all too well that at any moment, the members of the global insurance community could be called upon to assist in recovering from the unexpected. Now, as we set foot in a new decade, the insurance industry must capitalise on the fact that the only way to provide the best insurance coverage and minimise losses is to work together as part of a global insurance community. Unfortunately, some companies look at this reality and view the growing need for support from outside their borders as a threat to their own profits and prosperity. All members of the insurance industry have much to gain from expanded, open markets and must work with policymakers to avoid short-sighted regulations that limit consumers from accessing the best, most affordable and most efficient insurance coverage.


T Here in the United States, a small group of domestic companies have


unfortunately decided that the presence of the foreign-based competition is bad for their bottom line—despite the fact that they continue to be profitable while operating on a level playing field. Even so, they have convinced some members of Congress, led by Representative Richard Neal (Democrat, Massachusetts), to try and levy a tax on the US affiliates of foreign-based insurers and reinsurers, essentially limiting competition at home. The Coalition for Competitive Insurance Rates (CCIR) represents the consumer advocates, trade experts, risk experts and members of the insurance industry who have openly opposed this proposal. As a voice for those who would be adversely affected by this bill, HR 3424, commonly known as ‘the Neal Bill’, CCIR is working to put a spotlight on the many reasons to stand against this unnecessary tax.


The growth of the global marketplace means that in large, developed countries like the United States, foreign-based reinsurers play an increasingly invaluable role. The US requires a large amount of reinsurance capacity to cover events such as natural disasters, large-scale industrial accidents and acts of terrorism. A substantial part of this reinsurance is supplied by non- US reinsurance companies. For example, the United States accounted for 87 percent of worldwide insured catastrophic losses in 2005 and 61 percent in 2006. Because of the large amount of capacity needed to cover property in the United States, US-based companies purchase about two-thirds of their property catastrophe reinsurance—and approximately half of all their $100 billion investment in reinsurance—from foreign reinsurers.


he past decade has made it abundantly clear that the insurance industry is an irreplaceable part of the new global marketplace. In countries that carry a great amount of risk, a robust, competitive


Recent natural and man-made disasters reveal how important the global insurance marketplace has become to the United States. When Hurricanes Katrina, Rita and Wilma required $59 billion in insurance payments, more than 60 percent of these payments came from foreign insurers and reinsurers. After the terrorist attack on New York City in 2001, international insurance and reinsurance firms paid 64 percent of all US claims. These payments provided for urgent needs, from compensating injured workers to rebuilding damaged buildings and helping companies get back in business, thereby maintaining the regional and national economies. More recently, with the Transocean Deepwater Horizon oil rig disaster, a compelling fact from published reports is that about 51 percent of the Transocean property coverage is held by eight insurance companies, only one of which is headquartered in the United States.


Despite the important role played by global reinsurers, a few powerful


and profitable US-based insurance companies have banded together to push for a tax that would effectively shut down this system—forcing foreign-based companies to pull out of some markets and significantly raise prices in others. An economic impact study published in 2009 by the Brattle Group, an economic consulting firm based in Cambridge, Massachusetts, found that the Neal Bill would cost consumers more than $10 billion per year and would reduce US reinsurance capacity by 20 percent. When insurance companies, whether domestic or foreign, fight for Americans’ business, it’s good for consumers struggling to insure their homes and businesses, and it’s good for the insurance industry as a whole. Public policies should encourage, not impede, a robust insurance market open to as many competitors as possible. Unfortunately, the Neal Bill would create a punitive tax regime on international carriers that will result in less insurance capacity and increased costs for US consumers.


Even more disconcerting is that the consumers who would be hit hardest


by this new insurance tax are those who need insurance the most. Here in the United States, where insurance is regulated on a state-by-state basis, those regions of the country where natural disasters are a common and ongoing threat already face a lack of available insurance coverage, and domestic insurance companies often simply refuse to operate in these high- risk areas. As such, states with a history of natural disasters increasingly rely on foreign-based insurance companies to provide coverage. In a state such as Florida, where the threat of hurricane damage is real and constant, many domestic companies have either reduced their exposure or pulled out of the state altogether. The global marketplace of insurance providers has allowed them to make this choice, while leaving residents in these high-


November 2010 | INTELLIGENT INSURER | 33


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