Border adjustment tax could inflate insurance prices

The measure could distort insurance prices, according to data

Border adjustment tax could inflate insurance prices

Insurance News

By Allie Sanchez

President Donald J. Trump indicated to a joint session in Congress that he could approve the proposed adoption of border adjustment tax, which is spooking some insurers. 

Border adjustment tax (BAT) imposes levies on goods, services, and products, on their point of destination instead of from their point of origin, which could result in additional costs for carriers, especially those who use reinsurance to hedge domestic risks. 

A report by the publication The Hill explained that reinsurance is usually sourced offshore because this “insurance for insurers” assumes “disparate and unrelated risks from all over the world to create a pool of capital that is both large and diversified,” thus making spreading losses in case of large scale catastrophes more manageable. 

Furthermore, the cost of reinsurance cannot be written off as a business expense under the BAT regime, as is currently the case. 

If BAT is adapted to insurance, it could inflate prices because insurers will have to bear the costs and taxes levied on reinsurance, especially those coming from offshore, which will then have to be passed on to consumers. As a result, US insurers will rely less on reinsurance, thus concentrating risk within the country and making them more vulnerable to losses. 

Citing data from Brattle Group, the report said that BAT would force US consumers to pay as much as $37 billion more each year to get the same amount of coverage, while reinsurance supply could dwindle by as much as $70 billion. 

Reference website Investopedia said that BAT is meant to be used in tandem with export incentives, and not each by itself, “so that the net effect on trade is neutral.” 




 

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!