Coming ashore: a Florida law in the works would make it easier for foreigners to buy coverage

Latin Trade, July, 2005 by Derek Reveron

The U.S. state of Florida is set to pass a new law that would permit offshore insurance companies to sell policies in the state for the first time. The law would create a new insurance market in Florida

consisting largely of Latin Americans who travel frequently between the region and Miami.

It's not clear yet precisely how the law would work, say executives tracking the legislation. But the measure would allow offshore insurers that operate in the Bahamas, Grand Cayman and Bermuda to set up shop in Florida and sell life insurance policies and annuities directly to foreign nationals who spend less than 120 days a year in the state.

The law also permits financial institutions, insurance brokers and agents to sell policies to foreigners on behalf of offshore firms, including those that are affiliates of U.S. companies.

Backers of the legislation believe it will enhance Miami's international business image. "It will make Miami the insurance capital of Latin America and open another door to globalization," says Michael Carricarte, President and CEO of Amedex Insurance Company, which sells health and life policies in Latin America.

The bill could be an economic boon to South Florida as a whole. The region stands to rake in a share of the US$8.6 billion in insurance premiums that Latin Americans pay annually, according to research by the Beacon Council, a Miami economic development organization pushing for passage of the law. The law would contribute $2.7 billion a year to the state's economy, the group says.

Banks that cater to well-to-do Latin Americans appear to be big winners if the legislation passes. Member institutions of the Florida International Bankers Association (FIBA), one of the bill's strongest backers, would add life insurance and annuities to the investment portfolios they recommend to high net-worth Latin Americans who travel between their countries and Florida, says Banco Santander Vice President and CIO Agustin Abalo, who is also President of FIBA. Banco Santander would likely hire more sales people and personnel to support the added business, Abalo says.

The proposed law could create more competition and opportunity for Florida insurance companies that sell policies abroad. Some expect to attract new foreign customers in Florida. That's because the bill creates a financial incentive for foreign nationals to buy insurance in Florida. Currently, foreigners must pay federal withholding tax on policies containing investments that they buy from U.S. insurers. However, they pay no taxes on policies bought from offshore companies. The law conceivably would allow foreigners to indirectly buy policies from U.S. companies free of the added tax.

To lure overseas insurers, the bill eliminates regulatory obstacles. Foreign firms, for example, would be able to peddle products that don't fit Florida's requirements for U.S. insurers that do business in the state. The law requires foreign insurers to register with the state's insurance regulator, but they would not have to obtain a license from the agency.

Current law requires insurers doing business in the state to obtain a license. That can take several months, cost thousands of dollars in fees and taxes and include booklets of paperwork. Such requirements shut out offshore insurers because it is too much of a hassle, especially when figuring in the cost of setting up operations in Florida, supporters of the proposed law argue.

"The state insurance codes are an antiquated statutory framework that push international insurance offshore," says Bowman Brown, a senior partner at Miami law firm Shutts & Bowen who specializes in banking, financial services and insurance.

Unscrupulous. The law also would attempt to prevent unscrupulous firms from washing ashore. Companies must maintain at least a $15 million policyholder surplus, submit quarterly and annual financial statements, and have a license to do business in another country for at least three years prior to entering Florida. The state can waive the three-year requirement for companies that have operated for at least a year and have a surplus of at least $25 million. Regulators can close insurers suspected of insolvency.

Some Florida insurance organizations worry that fraud is inevitable and could taint the industry's image abroad. Critics point out that the bill says the state's regulator has no responsibility to determine the financial condition or claims practices of the overseas insurers. "Turning Florida into some kind of safe haven for companies that could potentially not do the right thing is a problem," says Tim Meenan, a lobbyist for Florida's insurance agents. Nevertheless, Florida's insurance industry groups do not oppose the bill. Nor do politicians, so far.

DEREK REVERON, MIAMI