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Is State Picking Winners and Losers In the Insurance Business?

Bill Britt



By Bill Britt
Alabama Political Reporter

MONTGOMERY—In 1995, the Alabama State Legislature passed a tax incentive plan authorizing lower Premium taxes for insurance companies that met certain criteria.

The tax incentives became available under two provisions passed that year: Insurance Facility Office Credit and Real Property Investment Credit.

Under the Insurance Facility Office Credit, an insurer is allowed up to a one-percent reduction in Premium tax, based on the number of full-time office employees and by the number of offices located in the State.

The Real Property Investment Credit provision provides up to a one-percent reduction in Premium tax for insurance carriers, based on real property investment in the State.

A Premium Tax is a “pass-through” tax, much like a sales tax in that the insurer collects the tax from the client and pays it to the State without additional funds.


According to Lexis Nexis, “An insurance premium tax is a form of gross receipts or excise tax; it is not based on profits or earnings, and is not affected by the cost of ceded reinsurance or other expenditures, of an insurer.”

For the last 20 years, the primary beneficiary of these tax credits has been ALFA insurance, with over $70.6 million in Premium tax credits from 2008 to 2013.

During that same time period, ALFA has spent millions in political donations.

Proceeding the passage of the tax incentive plan that would give ALFA huge tax savings, the company’s two political action committees (PACs) would spend $2.3 million during the two years ended Jan. 31, 1995, according to a 1997 report in the Wall Street Journal.

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Adjusted for inflation, that figure would be around $3.5 million in today’s dollars.

Over the years, other insurers have learned to take advantage of the Premium tax credit, but most can’t due to the language of the bill. This leaves the playing field severely tilted in one direction, according to the laws critics.

“Anytime you have a Premium tax that’s not fair to all concerned, you’re gonna hurt the citizens of the State and the companies who can’t get that Premium tax,” according to Judge Tim Russell, former Revenue Commissioner under Gov. Bob Riley and past president of Baldwin Mutual Insurance.

Judge Russell, who is perhaps the leading expert on the State’s premium tax laws, believes this is why fewer domestic companies do business in Alabama, and points out that since the passage of the bill in 1995, outside investment because of premium tax credits has never materialized:

“It could be legal, but it may not be fair. Every tax should be fair and this is why we have fewer domestic companies in Alabama today.”

Recently, Gov. Robert Bentley has proposed passing legislation to level the playing field for insurance providers which could stimulate growth while adding to the State’s ailing general fund.

Under Bentley’s Insurance Premium Tax plan the State would remove the credit for State privilege tax paid by insurance companies, the credit for ad valorem tax paid by insurers, and the office facilities and real property investment credits. The plan estimates this would increase State revenue by $25 million per year.

Judge Russell offers this analogy as to why he feels the current plan is unfair:

“If you and I go into a grocery store and you spend $1,000 and I spend $100, the sales tax should be the same. Why should you get a lower rate going through than I?”

He says, this is a simple example of State government picking winners and losers.

A comparison of insurance carriers paints a vivid picture of how Premium tax credits vary between companies. Data provided from the Department of Insurance reveals that from 2008 to 2013 ALFA and State Farm combined received a total of around $140 million compared to Nationwide who earned approximately $10 million in premium tax credits or less than 10 percent of the bigger players. From 2008 to 2013 the total for all insurance carriers receiving premium tax credits was $160.2 million.

If Premium tax credits are considered the a goldmine for profits by some it might be considered the Holy Grail for AFLA, who has profited far beyond its competitors due to the State incentives.

One of the reasons why ALFA enjoys a greater advantage under the 1995 legislation, is the company actually owns the real estate on which local ALFA offices are housed.

With other carriers, the individual agent owns or leases the office location, which impacts the Premium tax under the Real Property Investment Credit.

For example: In Mobile, ALFA has around 10 offices with 30 employees in those offices. Because of that, they are able to get a one to two percent advantage over the small agencies. In the insurance industry, two percent can mean the difference between profit and loss, especially when you multiply it year after year, Judge Russell explains.

State Farm had not taken advantage of the Premium taxes credits until around eight years ago. More recently, it used the Real Property Investment Credit provision to build a massive, new facility in Birmingham. It has been pointed out that State Farm continues to receive Premium tax credits on that building year-after-year:

“That building has already been paid for. How many times are we going to pay them for the same building?”

Judge Russell says the data shows that Premium tax credits give an unfair and unjust advantage to large insurance companies that have a lot of small offices spread out across the State, while undermining small independents.

“If you own a hardware store and you pay taxes and the hardware store downtown is subsidized and doesn’t have to pay and therefore can sell his product cheaper…those loopholes, hurt everyone and it hurts our State,” Judge Russell says.

How did it come to pass that State government began to pick winners and losers in Premium tax credit incentives?

In the 1985 US Supreme Court case Metropolitan Life v. Ward, the State’s Insurance Premium Tax System was ruled unconstitutional. The High Court found that State law violated the equal protection clause, and that a State could not charge out-of-state insurance (foreign) companies a higher premium tax than domestic insurance carriers. Prior to the ruling domestic carriers paid a rate of 3.0 percent while out-of-state carriers paid 4.0 percent

To address the US Supreme Court ruling, the State passed the Insurance Premium Tax Reform Act of 1993, which set the Premium tax rate at 3.6 on both foreign and domestic carriers.

However, in 1995, the Legislature passed the current incentive package that still, after 20 years, offers huge tax benefits to the wealthiest and most politically active insurance carriers in the State.

Bill Britt is editor-in-chief at the Alabama Political Reporter and host of The Voice of Alabama Politics. You can email him at [email protected] or follow him on Twitter.



Today is Thanksgiving

Today is a national and state holiday. Schools, banks, government offices and many private businesses are closed.

Brandon Moseley




Four hundred years ago, on Nov. 11, 1620, after 66 days at sea, a group of English settlers landed near what is today Cape Cod in Massachusetts. Onboard the Mayflower were 102 men, women, and children, including one baby born during the Atlantic crossing, who made up the Pilgrims.

The Mayflower, captained by Christopher Jones, had been bound for the mouth of the Hudson River. The ship took a northerly course to avoid pirates, but the decision to avoid the then widely traveled sea lanes to the New World took the ship into bad weather, which had blown the Mayflower miles off course and left the ship damaged. Off Cape Cod, the adult males in the group made the fateful decision to build an entire colony where none had existed prior. They wrote and signed the Mayflower Compact.

“In the name of God, Amen. We whose names are underwritten, the loyal subjects of our dread Sovereign Lord King James, by the Grace of God of Great Britain, France, and Ireland King, Defender of the Faith, etc. Having undertaken for the Glory of God and advancement of the Christian Faith and Honour of our King and Country, a Voyage to plant the First Colony in the Northern Parts of Virginia, do by these presents solemnly and mutually in the presence of God and one of another, Covenant and Combine ourselves together in a Civil Body Politic, for our better ordering and preservation and furtherance of the ends aforesaid; and by virtue hereof to enact, constitute and frame such just and equal Laws, Ordinances, Acts, Constitutions and Offices from time to time, as shall be thought most meet and convenient for the general good of the Colony, unto which we promise all due submission and obedience. In witness whereof we have hereunder subscribed our names at Cape Cod, the 11th of November, in the year of the reign of our Sovereign Lord King James, of England, France and Ireland the eighteenth, and of Scotland the fifty-fourth. Anno Domini 1620.”

After a few weeks off Cape Cod, they sailed up the coast until they reached Plymouth. There they found a Wampanoag Indian village that had been abandoned due to some sort of plague. During the Winter of 1620-1621 they lived aboard the Mayflower and would row to shore each day to build houses. Finally, they had built enough houses to actually move to the colony, but the cold, damp conditions aboard the ship had been costly.

Some 28 men, 13 women (one of them in child birth), and 8 children died in that winter. Governor John Carver would die in April. His widow, Kathrine White Carver, would follow a few weeks later. There is some recent archaeological evidence suggesting that some of the dead were butchered and eaten by the survivors.

The Mayflower and her crew left for England on April 5, 1621, never to return.


About 40 of the Pilgrims were religious Separatists, members of a Puritan sect that had split from the Church of England, in defiance of English law. In 1609, they immigrated to Holland to practice their religion but ran into problems there too. Others in the group had remained part of the Church of England but were sympathetic to their Separatist friends. They did not call themselves Pilgrims, that term was adopted at the bicentennial for the Mayflower voyage. The members of core Separatist sect referred to themselves as “Saints” and people not in their sect as “Strangers.”

In March 1621, an English speaking Native American, named Samoset, visited the Plymouth colony and asked for beer. He spent the night talking with the settlers and later introduced them to Squanto, who spoke even better English. Squanto introduced them to the chief of the Wampanoag, Massasoit.

Squanto moved in with the Pilgrims, serving as their advisor and translator. The friendly Wampanoag tribe taught the Pilgrims how to hunt and grow crops. The two groups began trading furs with each other.

William Bradford, a Separatist who helped draft the Mayflower Compact, became the longtime Plymouth Governor. He was also the writer of the first history of the Plymouth Colony and the Mayflower. Bradford’s more notable descendants include author, dictionary writer and scholar Noah Webster; TV chef Julia Child; and Supreme Court Chief Justice William Rehnquist.

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In the fall of 1621, 399 years ago, the Pilgrims invited their Wampanoag Indian friends to a feast celebrating their first harvest and a year in the New World with a three-day festival. This has become known as the first Thanksgiving.

Today is a national and state holiday. Schools, banks, government offices and many private businesses are closed.

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Alabama hospitals nearing COVID-19 summer surge levels

Wednesday was the 18th straight day with more than 1,000 people in hospitals in Alabama with COVID-19. 

Eddie Burkhalter



UAB Chief of Hospital Medicine Dr. Kierstin Kennedy.

Alabama hospitals reported caring for 1,483 people infected with COVID-19 on Wednesday, the highest number of patients since Aug. 11, when the state was enduring its summer surge. Wednesday was also the 18th straight day with more than 1,000 people in hospitals in Alabama with COVID-19. 

The seven-day average of hospitalizations was 1,370 on Wednesday, the 36th straight day of that average rising. The Alabama Department of Public Health reported 2,453 new cases Wednesday. The 14-day average of new cases was — for the eighth day in a row — at a record high of 2,192. 

Across the country, more than 80,000 people were hospitalized for COVID-19 on Tuesday, a record high and the 15th straight day of record hospitalizations nationwide, according to the COVID Tracking Project, a coronavirus tracking website.

The CDC this week recommended people not travel for Thanksgiving to help prevent the spread of coronavirus. 

“The only way for us to successfully get through this pandemic is if we work together,” said Dr. Kierstin Kennedy, UAB’s chief of hospital medicine, in a message Tuesday. “There’s no one subset of the community that’s going to be able to carry the weight of this pandemic and so we all have to take part in wearing our masks, keeping our distance, making sure that we’re washing our hands.” 


Kennedy said the best way she can describe the current situation is “Russian Roulette.” 

“Not only in the form of, maybe you get it and you don’t get sick or maybe you get it and you end up in the ICU,” Kennedy said, “but if you do end up sick, are you going to get to the hospital at a time when we’ve got capacity, and we’ve got enough people to take care of you? And that is a scary thought.” 

The Alabama Department of Public Health on Wednesday reported an increase of 60 confirmed and probable COVID-19 deaths. Deaths take time to confirm and the date a death is reported does not necessarily reflect the date on which the individual died. At least 23 of those deaths occurred in November, and 30 occurred in other months. Seven were undated. Data for the last two to three weeks are incomplete.

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As of Wednesday, at least 3,532 Alabamians have died of COVID-19, according to the Department of Public Health. During November, at least 195 people have died in Alabama from COVID-19. But ADPH is sure to add more to the month’s tally in the weeks to come as data becomes more complete.

ADPH on Wednesday announced a change that nearly doubled the department’s estimate of people who have recovered from COVID-19, bringing that figure up to 161,946. That change also alters APR’s estimates of how many cases are considered active.

ADPH’s Infectious Disease and Outbreak team “updated some parameters” in the department’s Alabama NEDSS Base Surveillance System, which resulted in the increase, the department said.

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Judge reduces former Alabama Speaker Mike Hubbard’s prison sentence

The trial court judge ordered his 48-month sentence reduced to 28 months.

Eddie Burkhalter



Former Alabama House Speaker Mike Hubbard was booked into jail to begin serving his four-year sentence for ethics violations in September. (VIA LEE COUNTY DETENTION CENTER)

Lee County Circuit Court Judge Jacob Walker on Wednesday reduced former Alabama House Speaker Mike Hubbard’s prison sentence from four years to just more than two. 

Walker in his order filed Wednesday noted that Hubbard was sentenced to fours years on Aug. 9, 2016, after being convicted of 12 felony ethics charges for misusing his office for personal gain, but that on Aug. 27, 2018, the Alabama Court of Criminal Appeals reversed convictions on one counts. The Alabama Supreme Court later struck down another five counts.

Hubbard’s attorneys on Sept. 18 filed a motion to revise his sentence, to which the state objected, according to court records, arguing that “Hubbard’s refusal to admit any guilt or express any remorse makes him wholly unfit to receive any leniency.”   

Walker in his order cited state code and wrote that the power of the courts to grant probation “is a matter of grace and lies entirely within the sound discretion of the trial court.” 

“Furthermore, the Court must consider the nature of the Defendant’s crimes. Acts of public corruption harm not just those directly involved, but harm society as a whole,” Walker wrote.

Walker ruled that because six of Hubbard’s original felony counts were later reversed, his sentence should be changed to reflect that, and ordered his 48-month sentence reduced to 28 months. 


Alabama Attorney General Steve Marshall on Wednesday said Walker’s decision to reduce Hubbard’s sentence was the wrong message to send.

“Mr. Hubbard was convicted of the intentional violation of Alabama’s ethics laws, the same laws he championed in the legislature only later to brazenly disregard for his personal enrichment,” Marshall said in a statement. “Even as he sits in state prison as a six-time felon, Mike Hubbard continues to deny any guilt or offer any remorse for his actions in violation of the law.  Reducing his original four-year sentence sends precisely the wrong message to would-be violators of Alabama’s ethics laws.”

Hubbard was booked into the Lee County Jail on Sept. 11, more than four years after his conviction. On Nov. 5 he was taken into custody by the Department of Corrections.

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Nick Saban tests positive for COVID-19, has “mild symptoms”

It’s unlikely Saban will be able to coach in person during Saturday’s Iron Bowl against Auburn.

Eddie Burkhalter



University of Alabama head football coach Nick Saban.

University of Alabama head football coach Nick Saban has tested positive for COVID-19 ahead of the Iron Bowl and has mild symptoms, according to a statement from the university on Wednesday. 

“This morning we received notification that Coach Saban tested positive for COVID-19,” said Dr. Jimmy Robinson and Jeff Allan, associate athletic director, in the statement. “He has very mild symptoms, so this test will not be categorized as a false positive. He will follow all appropriate guidelines and isolate at home.” 

Saban had previously tested positive before Alabama’s game against Georgia but was asymptomatic and subsequently tested negative three times, a sign that the positive test could have been a false positive. He returned to coach that game. 

It’s unlikely Saban will be able to coach in person during Saturday’s Iron Bowl against Auburn, given the Centers for Disease Control and Prevention’s guidelines for quarantining after testing positive and with symptoms. Neither Saban nor the university had spoken about that possibility as of Wednesday morning.

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