Paul Handerhan: Affordable Home Insurance Threatened by Joe Biden’s Hurricane Tax Plan

Insurance is so important these days that even insurance companies purchase insurance.

It is called “reinsurance” and it is at the center of a growing controversy over President Joe Biden’s tax plan. This new proposed tax, being derisively labeled a “hurricane tax,” demands that we – the Federal Association for Insurance Reform (FAIR) – enter the fray.

At FAIR, we take a balanced approach to public policy advocacy. In fact, it is right there in our mission statement, which reads: “Our mission is to provide insurance consumers with affordable rates for quality coverage through balanced public policy.”

We also have a “mission map,” which contains two key areas relevant to this issue: “eliminate unnecessary cost drivers” and “educate insurance consumers.”

It is all pointing toward our opposition to this hurricane tax.

First, what is reinsurance? In a nutshell, it works like this: a property owner buys a homeowner’s policy from a primary insurance company. That primary insurance company then buys reinsurance to hedge their risk, usually on the international market. This protects Florida insurance companies, for example, if there is a severe catastrophe, such as a hurricane or flood.

Now, here is the problem: President Biden, maybe unintentionally, is proposing a global minimum tax that will negatively impact the reinsurance industry. Reinsurance costs will increase because of this, but those costs will unfortunately just be passed down to property insurance companies and then, to property owners themselves. The end result is that property insurance premiums will increase for homeowners and businesses. That is essentially a hurricane tax on all Floridians, and one that many cannot afford when they are already paying some of the highest property insurance premiums in the nation.

Of course, while we are focused today on Florida, this could also be called a blizzard tax in the Northeastern United States, or a fire tax in California. And on and on.

But as if the hurricane tax was not concerning enough, this could also be called a “new home tax.” Homebuyers who put down less than 20 percent on a new property purchase must buy private mortgage insurance, sometimes known as PMI, which insures the lender against a mortgage default. Those private mortgage insurance premiums can easily be $1,000+ per year. Just like property and casualty insurance, many primary insurers providing mortgage default coverage purchase reinsurance on the international market to make sure they are covered in case of systemic market failure, similar to what occurred during the 2008-2009 financial crisis. Moreover, the current real estate market is already experiencing inventory shortages and causal price surges. Any unwarranted increases in insurance premiums, will only result in putting homeownership farther out of reach for many families.

There is still time to fix this issue. Congress can amend the current proposal to remove this hurricane tax that adversely impacts Florida and other coastal states.

We know the insurance world is not perfect – it is why we often support reforms to make insurance work more efficiently for consumers and insurance companies alike. But this proposal doesn’t work for either.

Back to our mission, we are eager to “educate insurance consumers” on the hurricane tax. And we ask Florida’s congressional delegation to “eliminate unnecessary cost drivers,” in the form of this hurricane tax.

Opposing this tax is definitely “balanced public policy.”

Paul Handerhan is the president of the Federal Association for Insurance Reform (FAIR), an organization that works toward insurance public policy reforms that will balance the interests of policyholders, consumer groups, attorneys, insurers, and others.

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