? The playing field among property and casualty insurers and reinsurers has finally leveled with a lower corporate tax rate.
? A patchwork of state regulations often ends up costing companies more and ultimately, consumers.
As insurance companies look for ways to take advantage of the new U.S. corporate tax rate, foreign-domiciled insurers may need to alter their economic strategies to stay competitive.
W. Robert Berkley Jr., president and CEO of W. R. Berkley Corp., recently spoke with S&P Global Market Intelligence about the tax rate and other regulations that his company, and the property and casualty insurance industry, are keeping a close eye on.
Some responses have been edited for length or clarity.
W. Robert Berkley Jr., president and CEO of W.R. Berkley Corp. Source: W.R. Berkley |
S&P Global Market Intelligence: Do you expect that more insurers will move stateside as a result of tax reform?
Robert Berkley:
You said that foreign-domiciled insurers will have to respond to the change. What ways will they have to adjust to stay competitive in a new tax landscape?
Their economic model is changing. They are facing competitors domiciled here that have a lower tax rate. And because of the [Base Erosion and Anti-abuse Tax], their economic model is changing. So they're facing challenges on two fronts. How they choose to respond to that, I don't know. If they want to maintain their margins, not for foreign-domiciled reinsurers that just write business from offshore, I'm not talking about those guys, their economic model hasn't really changed. I'm talking about people who write business in the U.S. and move it offshore. And because of the BEAT, that economic model changes if they want to maintain their margins.
Are there more ways foreign insurance companies will have to change in light of U.S. tax reform?
Maybe there are other ways, but the ways that come to my mind are: You can charge more, you can be willing to accept a lower return or you can do something with your risk selection, terms, conditions, et cetera. But ultimately, all things being equal with the BEAT, that's got to change your economics.
What is the most pressing regulatory challenge you face for the second half of the year?
In the short run, the question is going to be what is the U.S. approach to European [General Data Protection Regulation]. There's been rumblings coming out of California and some other places. There's no real clarity. That's the short run.
What about the long run?
For the long run, the question is is there going to be a moment where we can get more people to sort of all pull oars together on the regulatory front? Right now, yes, we have the [National Association of Insurance Commissioners] and they do a tremendous amount of good work. But there are some states that show up at the meetings, but they kind of pound their chests and they want to do their own things. I respect that, but for organizations trying to address everyone's needs when they have a different wish list, it comes with its complexities. So I think in the long run as regulations seems to be on the uptick, the question is are we able to get to a point where we can have more commonality or consistency across the board?
If regulations across different states vary with each other and the NAIC, how does that affect the industry?
Regulation is a big problem for the industry; becoming more nimble. But the NAIC is sort of doing their thing, and then you have some states doing their own things. That creates a lot of headaches and also a lot of additional expense, which ultimately gets passed onto the customer. There is massive expense that is ultimately borne by the customer for that level of state customization.
That also pressures your compliance department with all these changes, right?
Absolutely. But ultimately, we end up hiring more people and around we go, back to the customer. It's the same problem with the legal environment that's been going in the wrong direction. Claims are going up as the plaintiff bar is getting more momentum. And ultimately, what ends up happening, and we've seen it before perhaps in healthcare a number of years ago, society pays the tab.

