Homeowners insurance may become unaffordable

Just when you thought the insurance crisis along the Gulf Coast, particularly in Louisiana, could not get any worse, along comes Congress to try and really muck up the problems faced by property owners who are trying to protect the value of their homes.

If some members of Congress have their way, look for already sky-high insurance coverage costs to leap even higher.

Here's the clinker that will cause these big premium increases. Right when Congress goes back to work after the holidays, one of the financial proposals is a new income provision with a dull but important title that few will understand.

It's called deduction disallowance for excel non-taxed reinsurance premiums paid to affiliates (yawn). But a little explanation will enlighten us on the negative impact this provision will have on property owners in Louisiana and other states throughout the Gulf South.

The keyword here is "reinsurance." You and I don't buy it, but most insurance companies do. When an insurance company insures property, they often find another company to take part of their risk. Something like the bookie that lays off part of the bet he takes.

A company like State Farm, Allstate and most other insurers selling property insurance will shop around for someone to partner up with in case there is a major disaster. The majority of insurance companies looking for reinsurance go to Europe and work with reinsurers like Lloyds of London, Swiss Re, Munich Re and numerous other companies that operate worldwide.

These reinsurers can make money, for they are insuring a wide variety of risks all over the world. A disaster in Japan may cost such a company a bundle in one year, but profits are being made elsewhere. Just like an American company operating in Louisiana who "spreads the risk" across the country, reinsurers "spread the risk" worldwide.

And, yes, these foreign companies do pay U.S. taxes. Offshore companies pay an excise tax that is roughly equivalent to the corporate income tax paid by American insurance companies.

But if this "disallowance "provision is passed into law, guess who ends up paying? The increased tax will be passed along to the American insurance companies who then will pass it on to the property owner. And your property insurance costs will take a big leap.

So what about trade sanctions? If the U.S. sticks foreign insurers, look for countries where these reinsurers are located to retaliate in kind. Numerous American companies that have a strong presence in Louisiana for instance, also operate in a number of other countries worldwide.

AIG and Pan American are two such companies. British giant Lloyds of London sells more insurance in Louisiana than in almost any other state.

So here is what will happen. More taxes at home, retaliation abroad and the property rates go even higher.

This, unfortunately, is not the only bad news. Two percent deductibles have become the norm, adding thousands of dollars of exposure without adequate insurance coverage for most homeowners along the coast. So the owner of a $600,000 house has to come out of his or her pocket for the first $12,000.

If your rates go up and you are stuck with high mandatory deductibles, just be glad if you don't live in Louisiana. What if you were to consider moving to the Bayou State but were told there is a mandatory surcharge, which applies in no other state, requiring you to pay the sum of $1,100 or more just for the privilege of living there? And every other Louisiana citizen who buys a home and owns a car has to pay the same surcharge. Would you move there?

That is exactly what is happening in Louisiana now. The surcharges are from the cost of insurance, and if you live in Louisiana you now have to pay the highest premium costs in the nation.

And not just by a small amount when compared to other states. Louisiana exists in its own world of escalating insurance costs that are completely out of line with the rest of the country.

Many other states are facing increasing rates, though few of Louisiana's magnitude. But with Congress dabbling in potential tax increases on reinsurers outside the U.S., the outlook for more affordable rates on homes and commercial property, particularly along the Gulf Coast, becomes increasingly grim.

Our Louisiana congressional delegation needs to take heed.

Jim Brown's syndicated column appears each week in numerous newspapers throughout the nation and on websites worldwide. You can read all his past columns and see continuing updates at http://www.jim brownusa.com.