Banking on insurance: proposed legislation now making its way to the floor of the State House and Senate could open doors for more foreign-owned insurers to expand into South Florida

South Florida CEO, Sept, 2004 by Jaclyn Alcantara

A proposal making its way through Florida's legislature would make it easier for insurance companies to sell policies to foreign nationals and possibly spark more insurers to expand operations into South Florida.

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The proposed amendment to current insurance regulations would drastically cut the amount of paperwork and fees required by the state--a move that could make it more cost effective for insurance companies to solicit business from Latin Americans who live and visit the state primarily through South Florida.

The Beacon Council, Miami-Dade County's economic development group, has been shepherding the proposal through the legislative process. The group estimates that every dollar brought in by the additional sale of insurance products would yield $2.25 to the insurers and companies doing business with them. Further, every new insurance industry job is expected to generate at least one other job and possibly more.

"The total economic impact of the sale of one million family policies is up to $2.7 billion," the council says in a report to legislators. "The resulting creation of an estimated 50,000 jobs per one million family policies sold to non-US residents would strengthen Florida's professional job market."

The report went on to say that the new insurance jobs would pay an average salary of $45,000 a year--27 percent above the national average.

Industry insiders are comparing the proposal to the easing of restrictions on foreign-owned banks during the 1970s and 1990s. Those moves impacted Miami in particular when dozens of Latin American, and other, foreign banks opened new offices or expanded operations in the area.

"It's legislation designed to encourage the development of Florida as an international insurance center, and to do that in a safe and sound way," says Bowman Brown, chairman of the executive committee and head of the financial services division for the Miami-based law firm Shutts & Bowen LLC.

Latin Americans are the key target market because many are accustomed to purchasing financial services during their visits to South Florida. They do that in order to avoid unstable political and economic circumstances in their native countries, experts say.

To be sure, companies selling policies to foreign nationals today have to jump through some expensive hoops to do so. The Florida Department of Insurance requires insurers to file a 40-page application for every individual non-US resident buying a policy. The application can take several months to prepare and between two and three months to be processed by the state regulator. Pile on a $1,500 filing fee and a $1,000 license tax for every application and the costs involved for insurers become much clearer.

Moreover, many policies currently sold overseas do not comply with the Florida regulator's requirements, says Brown. The new legislation would nudge companies to fall into compliance in order to sell here.

It would also give foreign-owned insurers a slight edge over their counterparts in the US. For example, if an American-owned insurance company wanted to sell an annuity--which is a life insurance policy with an investment component to it, such as a mutual fund--to a foreign national here in Florida, that annuity sale would be subject to a federal withholding tax. The same annuity sold by an offshore insurer would not be taxed.

Brown and other proponents say American insurance companies would not be disadvantaged by the proposed changes. Those companies are seemingly more willing to absorb additional costs to sell to foreign nationals because they can make up those costs in other places by selling a wider variety of products and selling them to US residents, who generally are more comfortable doing business with American companies. By making it less costly for all insurers to sell to foreign nationals here, proponents says they hope that more foreign-owned insurance companies will set up shop in South Florida.

"A lot of people are doing banking here, and this [proposal] would add to their ability to purchase or service life and annuities products," says Dana Fernety, a Beacon Council vice president.

The council's impact report says that "although there is a very substantial market for insurance products of all types ... issued by offshore insurers to non-resident purchasers, international financial service providers located in Florida are largely precluded by Florida insurance law from participating in the market for such products," according to the draft titled "A Proposal to Stimulate the Development of Florida as a Regional International Insurance Center."

A Four-Year Labor

The legislation was introduced in the Florida House and Senate during the spring 2004 session. Strictly speaking it is an amendment to current state insurance legislation, which some say is sorely outdated. Proponents are convinced that, if passed, the proposed legislation could do for the insurance industry what a similar piece of legislation did for the banking industry in South Florida in 1977. The Florida International Banking Act of 1977 allowed foreign banks to establish agencies and representative offices in Florida. Additional legislation in 1992 allowed international banking corporations to establish branch offices in the state.