Insurers see 'Big Beautiful Bill' as opportunity to fuse business interests with government revenue needs

By Isha Marathe

June 23 - (The Insurer) - The insurance industry is calling for tax provisions disincentivizing third-party litigation funding (TPLF) to be left intact and for no limits on C-SALT deductions as U.S. President Donald Trump's sweeping budget reconciliation package heads to the Senate floor this week.

Insurers, however, remain split on the proposed enforcement freeze on state AI laws as Senate Majority Leader John Thune, House Speaker Mike Johnson and administration officials press Republican lawmakers to pass the "One Big Beautiful Bill Act" so that the president can sign it into law by July 4.

The bill would make Trump's 2017 tax cuts permanent, boost military spending, scale back Medicaid and SNAP benefits and change local and state tax caps.

TPLF

Robert Hartwig, clinical associate professor of finance and insurance at the University of South Carolina, said TPLF, where a non-party provides financing to a litigant in exchange for a portion of any potential settlement or judgment, is one of the most watched provisions.

"The reconciliation package reflects a fusing of the business interests of insurers with the revenue needs of the government," Hartwig said.

While the insurance industry has pushed to curtail foreign TPLF through state legislation like Georgia's most recent tort reform bill, Trump's bill seeks to impose a tax at the rate of 40.8% on any third party to such civil action who receives funds under a litigation financing agreement.

"Should this TPLF tax provisions remain in the final package, insurers will have successfully fed a few trial lawyers to the legislature lions," Hartwig said.

Specifically, insurers and commercial liability policyholders would benefit as claims costs fall, including for cases that could potentially lead to nuclear verdicts.

Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies, which has pushed for the inclusion of the tax, expects it to be a real deterrent.

"TPLF drives excessive litigation and legal system abuse that raises costs for every industry, and the loophole letting funders pay a capital gains tax rate – or for foreign funders sometimes no tax at all – is an open invitation to push as much litigation as possible, whether or not a case has merit," he said.

The bill is a long way from the president's desk, and the TPLF provisions will likely face hurdles.

"Insurers and business groups should expect the plaintiffs' bar to mobilize rapidly to excise this provision from the final bill. Failing that, they will work hard to have it removed in a future bill," Hartwig said, adding: "Trial lawyers are arguably the best organized, best funded and most politically connected special interest group in the country."

C-SALT

Because the bill maintains the key provisions of the 2017 tax law, it does not hold too many surprises for the industry, Grande said, adding that larger corporate tax limits and provisions are where it will be hit.

Specifically, the House Ways and Means Committee's proposed limitations on corporate state and local tax deductions as one way to offset the costs of the large party-line tax bill.

Grande said that the C-SALT deduction cap on state and local corporate taxes was a back-door increase in the corporate tax rates, making it anti-growth.

"You can’t support lower corporate tax rates to incentivize economic growth and support a new C-SALT tax," he said.

"The insurance industry pays a premium tax in states, which is generally supposed to be used to cover the costs of insurance regulation and often other state government functions – technically it’s a state and local tax –and if these were no longer deductible it would be a huge tax increase for insurers and a double tax of sorts."

Companies currently can deduct an unlimited amount of state income, property and sales taxes from their federal tax bill.

In a December 2024 analysis, the Bipartisan Policy Center and the Tax Foundation found that repealing corporate deductions for state income taxes could raise around $192 billion in revenue.

Beyond C-SALT, the National Association of Professional Insurance Agents (PIA) says it supports making permanent the 20% qualified business income pass-through tax deduction presently available to eligible S corporations.

The trade group also pushed for the reinstatement of an annual administrative and operating inflation adjustment for crop agents and addressed issues related to TPLF.

AI

The bill proposed a ten-year freeze on enforcing state and local artificial intelligence laws, and cleared procedural scrutiny on Saturday. It is set to remain in the bill ahead of Senate discussions, splitting Republicans and the insurance industry.

On June 16, the PIA sent a letter to Senate leadership urging them to remove the moratorium, saying the business of insurance "has been successfully regulated at the state level for over a century" and the industry had a longstanding exemption from most federal regulation dating back to 1945.

Skiados said state insurance regulators are already at the forefront of AI regulation. The National Association of Insurance Commissioners adopted a Model Bulletin in 2023 that requires insurers to implement AI governance programs in accordance with all existing state and federal laws.

He said the bill should explicitly exempt the insurance industry from the moratorium.

NAMIC's Grande agreed that, as drafted, the language is "ambiguous and broad in scope."

"Insurance companies use AI for a number of functions and processes – such as underwriting, claims processing, etc – and those activities, which utilize components of AI, are also regulated by state insurance regulators," he said.

"As drafted, the moratorium could impact insurers’ ability to use AI, as regulators could prohibit the use of AI tools that could make them unable to enforce existing regulations... the worry is that because it’s so broad, the moratorium language could impact state regulation in that way.”

Hartwig, on the other hand, described the moratorium as a "mixed bag."

While some in the industry may find it clashes with state regulations, others may prefer it, he said, "allowing them to develop and implement AI in their operations without the same degree of interference from state regulators."

"I expect states to attempt to regulate insurer use of AI irrespective of language in the bill, citing numerous Supreme Court rulings over the past century affirming the right of states to regulate the business of insurance."