Insurers Blast Maine Premium Tax Hike

April 7, 2005

The Maine Joint Committee on Labor, acting in a work session, has approved a bill to increase the state’s premium tax on several property/casualty insurance lines from 2 percent to 2.5 percent in order to fund retiree health insurance benefits for police and firefighters in the state.

The action did not sit well with insurers.

“We are concerned because this bill was passed without discussion by an 8 to 5 party line vote,” said Frank O’Brien, vice president and regional manager for the Property Casualty Insurers Association of America (PCI). “PCI is disappointed that politics appears to have won out over the serious public policy implications and economic repercussions arising from this tax increase.”

L.D. 1021 would fund retirement benefits from a 0.50 percent premium tax on several lines of insurance, including homeowners, commercial and personal car insurance, and a contribution of 1.5 percent of compensation from active municipal and county law enforcement officers and firefighters. The bill also requires the Maine Bureau of Insurance to submit a report to the legislature presenting options of how self-insured entities could contribute to the fund.

In a public hearing on the bill held earlier in the week, Assistant Majority Leader Rep. Robert W. Duplessie (D., Dist. 125) reiterated his support of the bill while stressing that he does not intend any retaliatory impact to the insurance industry. Police chiefs, fire chiefs, police officers and firefighters also spoke in support of the bill.

However, insurance representatives who testified, including PCI, estimated that retaliatory taxes, which could run from $2 million to $3 million over the next several years, would only be imposed on domestic companies and cannot be recovered by them.

The Maine Bureau of Insurance also objected to the measure, claiming that the study required by the bill would cost Maine taxpayers $250,000.

PCI decried the “unfortunate fact” that the industry did not have the opportunity to participate in the study which led to this bill.

“We are especially dismayed by the fact that the insurance industry was not included in the initial study of the issue,” O’Brien said. “While we fully agree with the need to provide for retirement benefits for Maine’s fire and law enforcement community, penalizing insurers – and ultimately, consumers – is not the right approach.”

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