The enormous devastation caused by hurricanes Harvey and Irma has prompted renewed discussion of appropriate policies to prepare for and finance the recovery from major disasters. In a new policy paper, the final in a series of seven R Street Institute publications examining the impact of tax policy on local U.S. insurance markets, authors Lars Powell, Ian Adams and R.J. Lehmann find the impact to consumers within New York State of taxing cross-border reinsurance transactions would tally to an additional $1.21 billion in higher property-casualty insurance premiums over the next decade.

“Based on property losses, three of the costliest hurricanes in U.S. history afflicted New York,” note the authors. “The less that private property owners insure their own risk, the more it will be shunted onto the backs of taxpayers. As Congress prepares to consider structural changes to the U.S. tax code, proposals that target international reinsurance would have adverse consequences on New York’s ability to obtain coverage affordably.”

The authors’ projections were derived by examining the impact that discriminatory tax treatment of cross-border reinsurance transactions would have on the supply of international reinsurance, and calculating the effects that subsequent changes in price and availability would have on insurance markets and policyholders. Because property and casualty insurers that do business in New York State—as in other states and regions exposed to major natural disasters—cede a large volume of risks to foreign reinsurers, these states would experience dramatically higher insurance premiums under tax systems that disallow deductions for cross-border reinsurance transactions.

“It is important that Congress understand such changes to the tax will disproportionately harm consumers’ ability to secure insurance coverage for their homes, cars and businesses,” write the authors. “This is of particular concern in New York, where residents are exposed to hurricane, severe storm and flood risk and have even recently suffered significantly at the hands of Superstorm Sandy ($9.6 billion in insured losses in New York alone) and Hurricane Irene.”

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