California Insurance Industry

I nsurers are cultivating California’s economy. In fact, the insurance industry benefits “the economic security of California and its citizens through claims and benefits paid to policyholders; investments in California’s infrastructure, housing, transportation, education and business growth; the generation of more than $2 billion in annual state tax revenue; and creating and sustaining thousands of jobs,” according to “Economic Impact Report – California Insurance Industry 2005.”

Authored by the Personal Insurance Federation of California, Association of California Insurance Companies, American Insurance Association, American Council of Life Insurers and Association of California Life and Health Insurance Companies, the report indicates California’s insurance industry plays a significant role in growing jobs and revenue. Particularly, the insurance industry affects the state’s economy through investments, community support, taxes and employment, the report notes.

In the property and casualty segment, California insurers earned $58.9 billion in direct premiums in 2003. The P&C segment contributed $59.8 billion in claims, expenses, taxes and fees to California, the report says.

Private passenger automobile premiums represented approximately 30 percent of the total $58.9 direct premiums in 2003, generating $17.9 billion. That sector paid $17.4 billion in insurance losses and operating expenses including taxes, fees and licenses, according to the report. Commercial automobile represented nearly 5 percent, with $2.8 billion in premiums. It paid $2.8 billion in losses and operating expenses. And workers’ compensation represented 24 percent, with $14.2 billion in premiums. That segment paid $15.8 billion in losses and operating expenses, the report notes.

Taxes

California insurers are taxed at 2.35 percent of their gross premiums. That is the highest rate among the 10 largest insurance states of California, New York, Texas, Florida, Illinois, Pennsylvania, Michigan, New Jersey, Ohio and Georgia, the report says.

The Golden State collected $2.1 billion in premium taxes from insurers in 2003-2004. In 2005-2006, it is estimated that insurance companies will pay $2.3 billion in premium taxes and be the fourth largest source of revenue for the General Fund, the report states. In comparison, personal income tax is expected to contribute about $43.6 billion to the general fund in 2005-2006.

While the tax burden on insurers in California is higher than that faced by other industries, the tax burden on insurers still continues to grow, according to the report.

Investments

Nevertheless, insurance industry payouts can have a positive effect. The statistics indicate that California insurers have invested $23 billion in municipal bonds, which support state and local public works infrastructure projects and government programs. Insurers also invest billions in the economy, supporting the job-producing private sector through investments in state and local government bonds, corporate stocks and bonds, mortgage loans and real estate holdings, the report says.

For instance, the California Organized Investment Network, which includes the California Department of Insurance, the insurance industry, community economic development organizations and community advocates, is a voluntary program to facilitate insurance industry investments. As of January 2005, the most recent data, 138 insurance companies had invested more than $1.6 billion through COIN, including low-income housing tax credit partnerships, other long-term invested assets, bonds, stocks, certificates of deposit, share certificates, commercial mortgages, and loan guarantees.

Community support

Insurance companies also support communities through millions of dollars of charitable contributions and grants, and volunteer man-hours, the report says. Impact Community Capital, for example, is a consortium of eight major insurance companies and has invested or made commitments to invest $750 million in projects in underserved areas throughout California. Impact has provided support for affordable housing for more than 7,200 low-income families, childcare centers and community health clinics, the report notes.

Meanwhile, the Insurance Industry Charitable Foundation uses insurer monetary contributions and employee volunteers to support programs for child abuse prevention, education, disaster preparedness and health. Projects assisted by IICF include the Contra Costa Crisis Center for Teen Suicide Prevention, Junior Achievement of Santa Clara Economic Education and Oakland Asian Students Educational Services Diversity Project, among others.

Employment

Long-term financing can enable businesses and commercial ventures to expand and create jobs, the report says. Its data indicates the insurance industry provided jobs for 308,422 Californians in 2004, including direct employment (228,460 jobs) and indirect jobs (79,961 jobs). The annual California payroll of the insurance industry in 2004 was $14.5 billion.

Agents and brokers provided 70,586 jobs and had a payroll of approximately $4.26 billion. Property and casualty companies provided 4,385 direct jobs and had a payroll of approximately $5.3 billion, the report indicates.

For a copy of “Economic Impact Report – California Insurance Industry 2005,” contact any of the report’s five author associations.

Topics California Carriers Market Training Development Property Casualty