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Tax law, technology bring change to insurance market

Posted On: Jan. 16, 2018 4:41 PM CST

NEW YORK — The recently passed tax law will benefit domestic insurers, who will see a lower corporate tax rate, but it should not be too detrimental to offshore insurers despite the closure of the so-called Bermuda tax loophole, a panel of insurer CEOs said.

The regulatory environment in Bermuda will continue to make the domicile attractive, they said.

The technological climate throughout the industry, however, poses challenges and opportunities to all insurers, they said during a panel discussion at the Joint Industry Forum hosted by the Insurance Information Institute in New York on Tuesday.

“Our company is pleased with the lowering of the corporate rate and we are also pleased at the closing of the Bermuda tax loophole,” said Bruce G. Kelley, president and CEO of Des Moines, Iowa-based EMC Insurance Group Inc.

Domestic insurers have long lobbied to close the loophole, which they said allowed Bermuda-based insurers to move domestic business offshore through affiliated reinsurance transactions and avoid tax.

Brian Duperreault, president and CEO of American International Group Inc., said the tax law will benefit AIG, but the existence of the Bermuda market will not be threatened by the law.

“The Bermuda insurance market serves an appropriate purpose, and I don’t think that’s going to change with the tax change,” said Mr. Duperreault, who was born in Bermuda and ran the former Ace Ltd. when it was headquartered in Bermuda.

Bermuda is one of the largest underwriting hubs in the world, and it will maintain its place in the global insurance and reinsurance market, said Mark E. Watson, president and CEO of Bermuda-based Argo Insurance Group International Holdings Inc.

“That marketplace isn’t going away, and part of the reason it’s not going away is why people are there: it’s not about tax, it’s about regulation,” he said. Insurers in Bermuda have one regulator, whereas insurers operating nationally in the United States have 50 state regulators, Mr. Watson said.

“At the end of the day, business is business, and business is going to flow where there’s the least amount of friction,” he said.

Regardless of where they are domiciled, all insurers are operating in a rapidly changing technological environment, the panelists said.

While insurers have faced competition from technology companies before, such as during the internet boom of the late 1990s, technology firms operating in the insurance sector, or Insurtech companies, are operating differently from their “dot-com”-era predecessors, Mr. Watson said.

“This time, it’s different,” he said. “A lot of the new tech start-ups are focused on helping businesses in different parts of the value chain they are not trying to acquire customers.”

Insurtech firms are seeking to improve insurers’ customer response times and improve underwriting, among other things, Mr. Watson said.

Insurtech companies often focus on trying to take over the business of intermediaries in the insurance business or offer services to insurers, but “where there isn’t a lot of money is on the risk-taking side, and I think that’s really where the biggest change can take place,” Mr. Duperreault said.

Insurers have huge amounts of information they use to understand risk, and Insurtech companies could play a bigger role in processing and understanding that data, he said.