Granholm’s Budget Plan Doubles Tax Burden on Michigan Insurers

Michigan Gov. Jennifer Granholm’s newly unveiled budget plan calls for $1.1 billion in tax cuts on businesses, but doubles the premium tax burden on insurers. Insurers paid more than $241 million in state taxes and would have to pony up $255 million more if the plan is approved by the Michigan Legislature.

“The governor’s plan disadvantages one industry–ours,” said Pete Kuhnmuench, executive director of the Insurance Institute of Michigan, in a statement. “As with all businesses, increased taxes will ultimately have to be passed on to our customers. Unfortunately, this massive tax increase on our industry will increase premiums for all types of insurance, including auto, homeowners, life and health insurance.”

The plan, designed to be revenue neutral though the state faces a projected deficit in the range of $300 million to $400 million in 2005 and $750 million in 2006, would cut taxes for about 77 percent of businesses, according to the Michigan Treasury Department. The rest would see their burden increase.

Granholm, a Democrat, said the tax plan, which cuts taxes for manufacturers and research and development firms, “creates fairness in the business climate that did not exist.” Rather than “taxing the things that can move,” Granholm said, the government should provide those firms with incentives to stay while collecting the revenue elsewhere.

That elsewhere appears to be, in part, the insurance industry, which in addition to the sums above also pays another $168 million to fund state-mandated programs, according to IIM. An example of one of these programs is the Michigan Property Casualty Guaranty Association, which pays claims on behalf of insolvent insurance companies.

“Doubling an industry’s tax burden is not the way to create economic growth in this state,” Kuhnmuench said.

Insurance companies directly employ about 39,000 people, with another 23,000 licensed as agents to sell insurance in this state. The average Michigan insurance industry wage is more than $45,000 annually.

The tax increase will put Michigan companies at a competitive disadvantage through the imposition of retaliatory taxes on Michigan-based insurance products sold in other states.

There are 163 insurance companies headquartered in Michigan, the 17th largest concentration of insurance companies in the United States, according to Kuhnmuench. This number has remained stable over the years. Michigan carriers had direct written premiums totaling approximately $22 billion. An additional $23 billion was written by companies doing business in Michigan but headquartered in other states.

In addition to the impact and contributions to the state’s economy, Michigan’s insurance industry provides residents with financial security. Insurance companies pay about $3 billion each year in auto and homeowners claims and benefits to policyholders in this state.

Insurance scoring ban put on hold
Meanwhile, Granholm’s attempt to ban the use of credit-based insurance scoring via the rule-making process is still on hold. As last reported, the rule had been seen to the Joint Committee on Administrative Rules on Jan. 12. The panel has 15 joint session meetings, or until about March 1, to file notice of objection or else see the rule become effective on July 1. Even if notice of objection is filed and legislation rescinding the rule is sent to the governor within the 15-session time period, all Granholm needs to do is veto the bill in order for the rule to become law.

Insurers have said they will sue to stop the rule, but the Michigan Association of Insurance Agents won’t be joining the suit, according to spokesman Gary Mitchell.