Wisconsin s Property & Casualty Insurers: Helping to Grow and Protect the Badger State

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1 Wisconsin s Property & Casualty Insurers: Helping to Grow and Protect the Badger State Prepared for The Wisconsin Insurance Alliance by the Wisconsin Taxpayers Alliance.

2 Executive Summary In June 2008, the Wisconsin Insurance Alliance (WIA) asked the Wisconsin Taxpayers Alliance (WISTAX) to study the impact that property and casualty (P&C) insurers have on Wisconsin s economy. WIA is a state trade association of property and casualty insurance companies whose membership ranges from some of the largest P&C insurers in the country to smaller Wisconsin town mutual insurance companies. WISTAX researchers examined state and national data on employment, wages, premiums, taxes, and financial holdings. The data show Wisconsin s P&C insurance industry significantly contributes to the Badger State s economy by creating high-paying jobs, paying personal and business taxes, holding large amounts of municipal bonds, and, of course, protecting residents property through insurance provided at some of the lowest rates in the nation. Major findings of this study include: Wisconsin s 180 property and casualty insurance companies was fifth most nationally behind Texas, New York, Pennsylvania, and Illinois. Wisconsin s P&C industry employed more than 17,000 workers in After accounting for state size, our P&C industry was sixth largest and more than 50% larger than the national average. In addition to employing over 17,000 people, the P&C industry generates agency and brokerage jobs, and, through its economic activity, additional jobs in other parts of the economy. Thus, directly and indirectly, between 59,000 and 65,000 jobs are linked to P&C insurers. In 2006, jobs in the industry paid an average of $59,925 annually, or 67% more than the statewide average ($35,857). The industry had a total payroll of more than $1.02 billion in 2006, and helped create an additional $2.1 billion in wages in other industries throughout the state. P&C insurance companies paid an estimated $97.7 million in corporate franchise and premium taxes in Industry employees paid an estimated $58.6 million in individual income taxes. P&C companies and their employees also paid significant property and sales taxes. P&C insurers boost community development by buying and holding large numbers of municipal bonds. In 2007, more than one quarter of the financial holdings of P&C companies nationwide were municipal bonds. P&C insurers held $6.91 billion (2005) in Wisconsin municipal bonds, or more than 19% of state-local debt in that year. P&C insurers provide state residents with some of the lowest homeowners and automobile insurance. In 2005, the average auto premium here was $615, or seventh lowest nationally. The average homeowners rate was $495, or fourth lowest in the U.S. P&C insurers also write workers compensation insurance. These companies paid more than $1 billion in claims in Wisconsin ranked 35th lowest in terms of workers compensation rates. wis tax 75 Years of Research & Citizen Education Wisconsin Taxpayers Alliance 401 North Lawn Avenue Madison, WI

3 Introduction Property and casualty (P&C) insurers protect individuals, families, and businesses from financial losses sometimes crippling that can result from automobile accidents, fires, severe storms, or other unexpected events. They also help protect workers through workers compensation insurance. In 2007, Wisconsin P&C insurers paid nearly $5 billion in claims to state residents, workers, and businesses. Just over $1 billion went for workers compensation claims. Nevertheless, few Wisconsinites are aware of the broad impact the industry has on the state s economy. P&C insurers employ more than 17,000 individuals here with an average annual wage approaching $60,000. In addition, P&C insurers promote community development and improvement by holding Wisconsin municipal bonds worth nearly $7 billion, or almost 20% of all outstanding state-local debt. The Industry In 2007, 1,013 companies were authorized to write property and casualty insurance in Wisconsin (see table above, right). Of those, 112 were domestic (located in-state) P&C insurers, 833 were nondomestic P&C insurers, and 68 were town mutual companies. Town mutuals are different from traditional P&C companies in that they can only write insurance in the counties specified in their license. They were originally formed in the late 19 th century to provide insurance for farmers and rural homeowners and P&C Insurance Companies/Operations # of Companies and Wis. Operations, Ins. Co's Authorized to Write in Wis. Premiums Dom. Nondom. Total $ billions $ $ $ $ $ $ $ ,013 $7.90 are licensed under chapter 612 of the state statutes. They are also assessable, meaning that if they do not have the money to pay all claims, they can assess policyholders to make up the difference. In 2007, there were 31 more companies writing P&C insurance than in Of the 31, five were domestic companies and 26 were located out-ofstate. The number of town mutuals (included in the domestic figure) declined by five from 73 to 68. The 1,013 companies wrote a total of $7.90 billion of premiums in Wisconsin in 2007, a 41.3% increase since A list of major Wisconsin P&C companies can be found on page eight. National Comparisons For most of the national figures cited in this report, P&C refers to traditional providers and town mutuals combined. This study follows the same practice unless otherwise specified. In 2007, more than 1,000 property and casualty companies wrote nearly $8 billion in insurance to protect state residents from unforeseen financial losses. Wisconsin Property & Casualty Insurers Page 1

4 Wisconsin s P&C industry was one of the ten largest nationally. As a share of state employment, the industry ranked sixth and was 50% larger than the national average. Wisconsin ranked fifth nationally in 2007 in the number of property and casualty insurers (including town mutuals) compared to other states. According to the Insurance Information Institute, there were 183 P&C companies here. Only Texas (231), New York (194), Pennsylvania (194), and Illinois (190) had more. Wisconsin is a net exporter of P&C insurance services and importer of premiums. In 2007, Wisconsin P&C companies wrote $28.3 billion in insurance to policyholders here and nationwide. Since state residents only purchased about $8 billion, Wisconsin was a net importer of approximately $20 billion in insurance premiums. In fact, state companies wrote nearly 6% of all P&C premiums nationwide. Employment The large number of P&C employers here means that it employs a significant number of people. National Context In 2006, P&C insurers here employed 17,080 individuals, or 10th-most in the nation. The top five states were Illinois, California, Ohio, Texas, and New York. All states ranked ahead of Wisconsin were more populous. When state size is accounted for, Wisconsin s P&C industry ranked sixth largest nationally (see chart below). At 0.7% of total employment, Wisconsin trailed only Illinois, Nebraska, Ohio, New Hampshire, and Iowa in relative industry size. With P&C insurers employing 0.4% of all workers nationally, Wisconsin s P&C employment was more than 50% larger than the U.S. average. Compared to Other Industries Wisconsin is a major player in the P&C industry nationwide. Likewise, the industry occupies an important place in the state s economy. 1. 0% 0. 8% 0. 5% 0. 3% 0. 0% Wis. Property & Casualty Insurance Industry Among Nation s Top Ten P&C Insurance Employment As % of Total Employment Ill. Neb. Ohio N.H. Iowa Wis. R.I. Mass. N.J. Ari. U.S Industry definitions are sometimes problematic. They can range from broad (e.g., finance and insurance or construction) to narrow (P&C insurance carriers or residential building construction). In 2006 employment terms, Wisconsin s P&C industry was about the same size as: residential building construction (17,343); dairy product manufacturing (18,163), which includes the manufacture of cheese, butter, and ice cream; and pharmacies and drug stores (16,058). The P&C industry was larger than two industries typically associated with Wisconsin: Page 2 Wisconsin Property & Casualty Insurers

5 brewing (1,538); and cheese manufacturing (14,394); It was also larger than the total number of Wisconsin doctors and lawyers combined (15,910). Additional Jobs Since employment figures include only individuals directly employed by P&C insurers, they understate the industry s employment impact in Wisconsin. Insurance Jobs. The industry relies on insurance agencies and brokerages to sell its products. In 2006, there were 18,736 individuals in Wisconsin employed by insurance agencies and brokerages, or by firms that provided other insurance-related services. Some of these jobs are P&C-related, while others are tied to life and health insurance sales. How large is the P&C segment relative to the entire insurance industry? Of the 1,575 insurers doing business in Wisconsin in 2006, 59% were P&C companies. Of the $67.6 billion of premiums written, 41% were for P&C insurance. Wisconsin P&C insurers also employed 31% of all workers in the state s insurance carrier industry. Given these figures, the P&C industry is responsible for an estimated 5,800 to 11,100 jobs in agencies and brokerages. Thus, the P&C industry is directly responsible for between 22,880 and 28,180 jobs within the insurance industry. All Jobs. In addition to those jobs, P&C insurers spur economic activity and help create jobs in other sectors. P&C industry employees spend wages, creating demand for food, clothing, cars, and other goods and services. This leads to hiring in a variety of other industries or what economists refer to as a multiplier effect. Compared to other industries, the P&C industry has fairly high multiplier effects, likely due in part to its high wages. According to federal estimates, Wisconsin s insurance carrier industry has a multiplier of That means that each job created in Wisconsin s insurance carrier industry leads to an additional 2.15 jobs in other industries, for a total of 3.15 jobs in the state. Of 433 industries with reported multipliers, the insurance industry s multiplier ranks in about the top third. The median (half lower, half higher) multiplier was When this large multiplier is included in employment analysis, the 17,080 P&C jobs supported 36,732 additional jobs. When agency and brokerage jobs are included, between 59,600 and 65,000 jobs are directly or indirectly tied to the P&C industry. Job Growth Since 1998, Wisconsin s P&C industry has grown faster than the P&C industry nationally. From 1998 through 2006, the number of Wisconsin P&C jobs increased an average of 0.3% per year. However, as the chart on page four shows, job numbers declined in 2001, 2003, and The industry grew strongly in 2000, with employment rising 7.1%. From 1998 through 2006, the number of state P&C jobs rose 2.7%. Since 1998, the number of P&C jobs nationally declined 12.3%, or an average of 1.6% per year (see chart). Major job declines occurred in 2000, In addition to the 17,080 jobs created directly by property and casualty employers, another 42,000 to 48,000 in the state can be traced to the industry. Wisconsin Property & Casualty Insurers Page 3

6 Job growth in Wisconsin s property and casualty industry has exceeded the nations since , 2004, 2005, and Due to the state s stronger performance, Wisconsin s share of national P&C employment increased from 2.8% in 1998 to 3.2% in Part of the uneven growth in Wisconsin s P&C employment can be attributed to slow growth in the state s overall economy. Like the nation s, Wisconsin s economy slowed in the early part of this decade. In 2001 and 2002, the total number of Wisconsin jobs declined, and in 2006, job growth was a modest 0.6%. Payroll Wages and Salaries Wisconsin s 2006 P&C payroll (total wages and salaries) totalled $1.024 billion. That figure was 1.2% of all wages and salaries paid in the state. Average P&C wages are relatively high. Statewide wages across all industries averaged $35, Wis. P&C Employment Growth Stronger Than Nations Wis. vs. U.S. Employment Index, 1998= U.S. Wis in The average wage in the P&C industry was $59,925, or 67% higher (see chart on page five). Average P&C wages were higher than the insurance industry as a whole ($57,869), but less than those paid in the life insurance industry ($73,354). Wages were also significantly above those in the industries previously selected for employment comparisons: residential construction, dairy product manufacturing, pharmacies and drug stores, brewing, and cheese manufacturing. Compared to broader industry categories, P&C wages topped those in 17 of 20 industries, including manufacturing ($43,721), construction ($48,312), and wholesale trade ($47,912). Average Wisconsin wages are generally lower than national averages. The P&C industry follows that pattern. Nationally, P&C wages averaged $62,489, or about 9.5% higher than in Wisconsin. Total Payroll Impact Insurance Industry. As previously mentioned, P&C insurers are linked to between 5,800 and 11,100 jobs in agencies and brokerages. Using average wages in these industries, P&C insurers are associated with between $284.7 million and $541.8 million in agency and brokerage payroll. Other Industries. P&C payroll also multiplies through the economy and helps to create wages in other industries. The insurance industry s estimated earnings multiplier is 2.49, or about 8.4% higher than the state median (2.30). This multiplier means that, in addition to the $1.024 billion in earnings contributed to the state economy, P&C earnings also help create an additional $1.524 billion in wages in other Page 4 Wisconsin Property & Casualty Insurers

7 sectors. When brokerage and agency earnings are included, the industry is responsible for between $2.8 billion and $3.1 billion in direct and indirect earnings to Wisconsin s economy. Payroll Growth While employment growth in the P&C industry, as in the state economy, has been uneven since 1998, wage and salary growth has been strong. From 1998 through 2006, total P&C payroll rose an average of 4.9% per year. Increases of more than 5% occurred in 2000, 2002, 2004, and Wages and salaries in all Wisconsin industries climbed an average of 4.0% per year during those years. National P&C payroll growth has been only 2.0% annually. In other words, payroll growth in the P&C industry here outpaced the industry nationally and other industries in Wisconsin. incomes are above the state average, they pay slightly higher average tax rates than the general population. In 2006, the average taxpayer paid 4.4% of income to the state in income taxes. P&C employees with wages averaging about $57,000 paid an estimated 4.6%. Applying this rate to the $1.024 billion of wages paid in the P&C industry yields total income taxes of $46.6 million, or almost one percent of the statewide total. Industry employees often have other income sources, such as interest income or capital gains. When these are accounted for, employees of the P&C industry paid an estimated $58.6 million in Property and Casualty Insurers Pay High Wages Avg. Annual Wage ($000), Selected Industries, 2006 Property and casualty insurance wages were 67% higher than the state average in Taxes While P&C insurers contribute significantly to Wisconsin s economy, they also pay significant taxes to state and local governments. Property and Sales Taxes Like other state residents, industry employees pay state sales taxes and local property taxes. Additionally, individual companies pay local property taxes on their facilities, as well as sales taxes on certain purchases. Insufficient information makes it impossible to estimate these amounts. Individual Income Taxes Industry employees also pay state income taxes on their wages and other income. Because their $80 $70 $60 $50 $40 $30 $20 $10 $0 State avg. $73.4 $57.9 $59.9 $52.2 $49.5 $43.6 $35.9 $39.7 $38.0 $34.7 $24.7 Insurance Ind. Life Ins. P&C Ins. Health Ins. Agencies/Brokers Res. Construction Dairy Prod. Manuf. Pharm./Drug Stores Brewing Cheese Manuf. Wisconsin Property & Casualty Insurers Page 5

8 Selected Taxes Paid by P&C Insurers and Employees 2006, $ Millions Tax Amount Ind. Income $58.6 Corp. Inc./Franchise* $23.4 Fire Insurance $15.4 Insurance Premiums $58.9 *Estimated 2005 state income taxes, or slightly more than 1% of the state total. Corporate Taxes P&C insurance companies pay one of two corporate taxes. Out-of-state companies pay a tax on gross premiums. For example, if an Illinois company wrote an automobile insurance policy with an annual premium of $1,000, the company would pay $20 (2%) to Wisconsin. The rate depends on the type of insurance: mortgage guarantee, 2%; fire, 2.375%; ocean marine, 0.5%; and other property and casualty, 2%. Out-of-state P&C insurers paid $58.9 million in premium taxes in 2006 (see table at left). Most domestic (in-state) insurance companies pay the state s franchise tax (7.9% of taxable income). Their liability under that tax is limited to what they would owe under the 2% gross premiums tax. Figures from the Wisconsin Department of Revenue (DOR) show that 2005 franchise tax revenues for all insurance carriers (including health and life) totalled $37.7 million. DOR could not provide information specific to the P&C industry. However, applying the P&C industry s share of net profits yields an estimated $23.4 million of franchise taxes paid by P&C employers in Companies that provide fire insurance pay an additional 2% fire insurance tax. Collections from the fire insurance tax are paid to local fire depart- ments. In 2006, P&C insurers paid $15.4 million in fire insurance premium taxes, an increase of 60% since Bond Holdings In addition to providing good-paying jobs and paying significant taxes, P&C companies boost community development through purchase of municipal bonds, issued by states, public schools, and other local governments. In 2007, more than one quarter of financial assets of P&C companies nationally were municipal bonds. That was a higher percentage than any other asset class. In 2005 (the last year state data are available), P&C insurers nationwide held $6.91 billion in Wisconsin municipal bonds. That was more than 19% of state-local debt in that year. Rates Of the various types of property and casualty insurance, auto and home insurance are most often purchased. Fortunately, Wisconsin has some of the lowest P&C insurance rates in the nation. Auto Insurance In 2005, the average automobile premium in Wisconsin was $615, or seventh lowest nationally. States with lower rates were Idaho, Iowa, Kansas, North Carolina, North Dakota, and South Dakota. Nationally, auto rates averaged $829, or nearly 35% higher than in Wisconsin. Auto insurance premiums here averaged 1.3% of household income, third lowest nationally (see Page 6 Wisconsin Property & Casualty Insurers

9 chart below). Only Iowa and Virginia were lower. Nationally, auto insurance premiums averaged 1.8% of household income. Homeowners and Renters The average homeowners insurance rate in Wisconsin was $495, or fourth lowest nationally. The average rate across the nation was 54% higher at $764. The only states with lower homeowner rates were Idaho, Oregon, and Utah. Again, Wisconsin also fared well when rates were compared to household income. Wisconsin s average homeowners rate was 1.1% of income and lower than in all states except Delaware and Utah. The national average was 1.7% of income. Wisconsin fared even better on renters insurance. Here, rates averaged $126, with only South Dakota having lower rates. Nationally, renters paid an average of $193 for insurance, or 53% more than in the Badger State. Workers Compensation Wisconsin s workers compensation premiums are also low. According to the 2006 Oregon Worker s Compensation Premium Rate Ranking Summary, Wisconsin had the 35th lowest premium rate among 51 jurisdictions studied. Conclusion Wisconsin s property and casualty industry is a large employer in the state, accounting for more than 20,000 high-paying insurance jobs in the state. Average wages in the industry approach $60,000 per year, or 67% higher than the state average. The industry also helps promote community development by holding nearly 20% of all Wisconsin municipal bonds. Finally, a recent study gave Wisconsin an A grade as a good place for P&C insurers and consumers. The Badger State was one of five states with the highest grade. 2.0% 1.5% 1.0% 0.5% 0.0% U.S. Wisconsin P&C Premiums Among Nations Lowest Average Auto and Homeowners Insurance Rates as % of Household Income, % Iowa 1.3% 1.3% 1.3% 1.4% 1.4% Vir. Wis. N.D. Automobile Insurance Kan. U.S. 1.7% Del. 0.9% 1.0% 1.1% 1.1% 1.1% Utah Wis. Ida. Homeowners Insurance Ore. Wisconsin Property & Casualty Insurers Page 7

10 Major Wisconsin Property and Casualty Insurers ACUITY American Family Insurance Ameriprise Auto & Home Insurance Badger Mutual Insurance Co. Capitol Indemnity Corp. Church Mutual Insurance Co. 1st Auto and Casualty Insurance Co. Germantown Mutual Insurance Company Integrity Mutual Insurance Co. Ixonia Mutual Jewelers Mutual Insurance Company Kemper Auto and Home League of Wisconsin Municipalities Mutual Manitowoc Mutual Insurance Company Maple Valley Mutual Insurance Co. McMillan Warner Mutual Insurance Co. Mount Morris Mutual Old Republic Surety Co. Partners Mutual Insurance Co. PIC Wisconsin Progressive Direct Insurance Company QBE Regional/General Casualty Racine County Mutual Insurance Co. Rural Mutual Insurance Co. SECURA Insurance Companies Sentry Insurance Sheboygan Falls Mutual Insurance Society Insurance State Auto Insurance Companies Sugar Creek Mutual Insurance Company United Wisconsin Insurance Company Waukesha Co. Mutual Insurance Wausau Insurance Companies WEA Property & Casualty Insurance Company West Bend Mutual Insurance Wilson Mutual Wisconsin American Mutual Insurance Co. Wisconsin County Mutual Insurance Corp. Wisconsin Mutual Insurance Company Wisconsin Reinsurance Corp. Page 8 Wisconsin Property & Casualty Insurers