Posted on 18 Jul 2011
A new research report developed by five insurance trade associations documents the vital role the insurance industry plays in the Golden State’s economy. Insurance companies that offer life, health, disability, long-term care and property-casualty insurance to Californians, contribute billions of dollars to the state’s economy. Insurers invest in bonds, commercial mortgages and real estate, supply family-wage jobs, generously support charitable and volunteer efforts, and pay policyholder claims.
The report, the 2011 Insurance Industry’s Impact on California’s Economy, was compiled by the Association of California Life and Health Insurance Companies (ACLHIC), the Personal Insurance Federation of California (PIFC), the American Insurance Association (AIA), the American Council of Life Insurers (ACLI) and the Association of California Insurance Companies (ACIC). These non-profit trade associations account for more than 90% of the life, health, disability, long-term care, auto, homeowners and commercial insurance premiums written in California.
“It takes property-casualty insurance to buy a home, drive a car, hire an employee or open a business. It takes life, health, long-term care or disability insurance to protect against premature death, and safeguard a family’s income or retirement savings. Insurance is the safety net that helps individuals, businesses and communities grow and develop but also rebuild and recover after a catastrophe or loss of a loved one,” said Brad Wenger, ACLHIC president. “California is the largest insurance market in the U.S. with 784 licensed property-casualty companies offering auto, homeowners, commercial liability and workers’ compensation insurance and 456 licensed companies providing life, disability, long-term care and health insurance coverage. This biannual report tells the story of how much economic power insurance injects into California’s economy and job market.”
In 1996, insurers collaborated with the California Department of Insurance (CDI) and the California State Legislature to create the California Organized Investment Network (COIN). A first of its kind, the COIN Program enables policymakers, regulators and the industry to encourage investment in California’s moderate and low-income communities.
“A CDI data call in 2007 demonstrates that insurers had made 5,964 separate investments in qualified California Community Development Investments since COIN was created in 1996. These investments infused $19 billion into community development projects throughout California,” said Rex Frazier, PIFC president. “Specifically, under the direction of the COIN Program, insurers have invested $117.5 million into certified Community Development Financial Institutions. These institutions specialize in providing financial products and services to people and communities underserved by traditional financial markets.”
Insurance companies are among the largest investors in municipal bonds issued by state and local governments. A.M. Best data shows that insurers held $45.4 billion in California state and local bonds in 2009.
“The billions of dollars that insurers invest in municipal bonds enable communities to undertake critical projects including building schools, community colleges, health care facilities, roads and bridges. Insurers help fund pensions, urban development and public works projects,” said Marjorie Berte, AIA vice president, Western region. “These major construction projects bring jobs and renewal to communities across California. The insurance industry’s investment in California state bonds moves many large scale economic development projects from an idea into a reality even during this difficult economy.”
While most California corporations pay taxes based on their net income, insurers pay a gross tax on the insurance premiums they collect each year. Insurers take no deductions and pay premium taxes whether they are profitable or not. Thus, the insurance premium tax has been a highly predictable and steadily growing source of revenue for the State of California.
“Insurers doing business in California pay an effective state tax rate that is significantly higher than the rate paid by other financial institutions and corporations: In fact, California charges insurers the highest tax rate among the ten largest insurance states,” said John Mangan, ACLI regional vice president. “According to Governor Brown’s 2011-12 budget, insurers will pay $1.9 billion in premium taxes, making the insurance premium tax the fourth largest source of General Fund revenue for the State of California. Our member companies pay these premium taxes in addition to the fees and assessments needed to fund operations of the California Department of Insurance.”
Property-casualty, life, health, long-term care and disability insurers provide jobs directly to company employees, and help sustain thousands of small businesses, including agents and brokers as well as vendors and suppliers. Payroll dollars turn over three times within a local economy.
“During this difficult time when jobs are hard to find and important to retain, the insurance industry is providing jobs to 234,330 Californians with a payroll of $16.8 billion,” said Mark Sektnan, ACIC president. “Insurers also bolster the economy by paying policyholder claims and helping recover after a loss. Life, health, disability and long-term insurers paid out $43.5 billion in benefit payments in 2009. Property-casualty insurers paid a total of $50.2 billion in claims and expenses in 2009.”