District of Columbia National Disaster Insurance Protection Act (7/7/2010)

District of Columbia National Disaster Insurance Protection Act

July 7, 2010

WASHINGTON, DC -- The Office of Congresswoman Eleanor Holmes Norton (D-DC) today announced that Congresswoman Norton, chair of the subcommittee with jurisdiction over natural and man-made disasters, will introduce the, District of Columbia National Disaster Insurance Protection Act when Congress returns from recess on Tuesday, July 13, to make the District of Columbia an international financial center by ensuring that sufficient catastrophic insurance reserves are available to cover losses from natural and man-made catastrophes in the United States. The Norton bill amends federal tax law to make the District a special tax jurisdiction where catastrophic insurance reserves and the investment income from such reserves will be exempt from federal taxes. Under current federal law, these funds are subject to federal taxes, which has led property and casualty insurers to hold billions of dollars in reserves in foreign jurisdictions, such as the Cayman Islands and Bermuda, where they are not subject to federal taxes.

The legislation will spur direct and indirect economic development in the District and the region because: (1) companies keeping their reserves in the District would be required to have a physical office here and employ a certain number of District residents, leading to increased income, sales and property tax revenue; (2) lawyers, accountants, actuaries, bankers, insurance consultants, and support personnel would be needed to service these new insurance companies; (3) the District could charge an excise or premium tax or fee on the catastrophic funds as sovereign jurisdictions do today; (4) the District would derive increased tax revenue from the banks holding the funds.

"This bill serves important national and local purposes," said Norton. "Our bill would be a financial boon to the District, retaining funds here and therefore in the U.S., where they would fuel both the local and U.S. economies. The bill also would help protect individuals and businesses with property and casualty insurance, as well as U.S. taxpayers. Today, if a catastrophe happened in the U.S. and these foreign insurance companies had difficulty paying, U.S. taxpayers would likely be on the hook." In fact, after the September 11, 2001 terrorist attacks, the U.S. government had to set up a federal backstop for losses related to terrorist attacks, the Terrorism Risk Insurance Act, which is still in place today.

Norton has special concerns related to her work as subcommittee chair with jurisdiction over disasters because many insurance companies keep catastrophic reserves and related investment income off-shore in order to escape U.S. taxes and regulations. Individuals and businesses must rely on small foreign jurisdictions to preserve and protect these funds. As the financial crisis shows, the U.S. government has a strong interest in preventing systemic financial risks. Transparency, for example, is a major feature of the pending financial reform bill, but there is little transparency in catastrophic insurance reserves, posing a risk to the U.S. economy and to taxpayers. Norton expects the bill to have support, including from state insurance commissioners in coastal states and much of the insurance industry.

"Congress often uses its power to harm District residents, such as the old bans we have just removed prohibiting the use of local funds for needle exchange, medical marijuana, and abortions for low income women, and denying the city equal representation in Congress," Norton said. "With our bill, Congress would finally use its power to benefit District residents." The U.S. Government Accountability Office has noted that the District has a structural financial imbalance that makes budgeting more difficult for the city than for others as a result of federal laws, such as the District's inability to tax non-resident income and the large presence of non-taxable federal, international and non-profit land here. Norton has partially corrected this imbalance with her land transfer law, turning over valuable revenue-generating federal parcels to the District. However, the District's economy remains fragile with no state to back it. Norton said that this bill would further help reduce the city's structural imbalance. The Congresswoman worked closely with former Commissioner of Insurance, Securities and Banking for the District of Columbia Lawrence H. Mirel on this legislation.