Think tank R Street Institute scholars analysed the impact that a decrease in the supply of international reinsurance would have on property insurance premiums, highlighting the enormous costs that would be passed down to customers, should the border-adjustment tax (BAT) become reality.
R Street said the most striking impact would be felt in Florida, where research shows premiums could increase between $1.4 and $2.6 billion annually simply to maintain coverage as it exists today, although other states would also be hard hit; “a BAT set at 20 percent would increase the cost of property-casualty insurance in Texas by $3.39 billion over the next ten years. In Louisiana, it would result in an increase of $1.1 billion. And, in North Carolina, it would result in an increase of $800 million.”
“Deep and liquid global reinsurance markets are a vital component of the nation’s approach to risk transfer. Having access to international reinsurance capital keeps insurance rates affordable and allows consumers to protect themselves without burdening fellow taxpayers.”
R Street research shows that consequences for a BAT rate of 20% levied on insurance or reinsurance imports would be severe in terms of price hikes for policyholders who benefit along with the insurance and finance sector from easy access to international capital.
“Policy developments limiting the availability of such capital produce a cascade of negative effects for Americans across the country and from all walks of life.
“Vital and unexpected elements of day to day life are simply not achievable without affordable insurance – a BAT places that affordability in jeopardy.”
In coming weeks R Street said it would release further results from studies on the impact of a BAT across the states of California, New York and the New Madrid seismic zone, and investigate its impact to cost and availability of life insurance and annuities.