Policy Studies Catastrophe Insurance

Estimating Potential Effects of the Global Minimum Tax on Catastrophe Insurance Markets

Key Points

If the Made in America Tax Plan passes as written, the cost of insurance will increase for everyone in the United States.
Reinsurance companies in Bermuda are crucial to the United States’ ability to finance the costs of climate change.
When the price of insurance increases, fewer families will purchase insurance, increasing the costs paid by the U.S. government through the Federal Emergency Management Agency.

The U.S. Department of the Treasury’s Made in America Tax Plan (MATP) includes two provisions that will increase the cost of insurance in the United States. First, it increases the corporate tax rate from 21 percent to 28 percent. Second, it implements a global minimum tax (GMT) regime with proposed rates from 15 percent to 28 percent. The first rule will directly increase the cost of providing insurance by increasing the tax burden on U.S. insurers. The second provision will increase the cost of insurance indirectly, by increasing the tax expenses of international reinsurance companies, which provide much of capital for U.S. risks, and are often located in low-tax jurisdictions.

In this policy study we estimate the expected increase in the cost of insurance for consumers in the United States and show how insurance expenses will increase for the average family in each state. As a preview of results, the expected increase in the cost of insurance will be between $10.8 billion and $20.3 billion per year, depending on the tax rates ultimately chosen by policymakers. As these tax increases are passed through to consumers, they will effectively tax everyone who buys insurance, regardless of income. Though these changes will affect the cost of insurance for all U.S. consumers, the price increases will be largest for those living in areas exposed to catastrophe losses (e.g., hurricanes, earthquakes, tornadoes, floods and wildfires).

Press release: Biden’s Made in America Tax Plan Would Raise Taxes on Hurricane Ida Victims

Image credit: Sasa Kadrijevic

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