Some insurance executives are warning that a hike in premiums is on the way, now that parliamentarians have amended the Business License Act which provides for an increase in tax on premiums from 2 percent to 3 percent.
Members of the House of Assembly gave the green light for the amendment in the wee hours of Saturday morning, following a long week of debating the 2003-2004 budget.
Executive Director of Finance and Investments at Imperial Life Financial Michael Cunningham said while insurance companies cannot increase existing premiums, new policies will be hit with higher premiums.
“So as far as the enforced polices are concerned, that’s a loss for us… but when we underwrite the policy in the New Year, we will incorporate the increase in premium taxes,” Mr. Cunningham said in an interview with the Bahama Journal Monday. “Where we’re looking at new policies, what it would mean is that the premiums would have to be increased by more than 1 percent. That’s one way of dealing with it.
“You’re probably looking at a 10 to 15 percent increase in standard premiums as it is now. It may be even more than that if you want to say we will recover the increased premium taxes for our entire portfolio. You’re looking at huge increases in order to cover that.”
Mr. Cunningham said it is not possible to increase the premiums until the policies come up for renewal. He said it means that insurance companies will probably face losses.
“If we have a group up for renewal in December this year, it means that any premium tax up to December this year will be a loss to us,” he said.
The insurance executive foreshadowed that some companies may go to the extent to incorporate a cost to recover the loss of the previous months as well.
“But as for the individual life insurance, it is a very, very difficult task to say whether we will be able to recoup it,” Mr. Cunningham said. “I would probably go on the limb and say substantial portions of it will not be able to be recovered.”
A general insurance executive, speaking on the condition of anonymity, told The Bahama Journal that he understands that the tax increases are to boost revenue.
“It’s that simple,” he said. “Government has to find means of raising the money it has to raise to pay for the services it is expected to provide to the people and it has found that this is the way it can do it…if you’re paying $100, $2 is going to the government as tax, even now. So you’re likely going to end up paying $101 and $3 of that would be going to government as tax,” he said.
The insurance executive said that insurers made $246 million in premiums in 2002. They would have paid altogether, $4,920,000 in taxes, he said.
So if they had been paying the 3 percent, they would have been losing money…another 1 percent tax on premiums and their losses would have been much more substantial. The whole market would have lost money,” he added.
As for the deferment of the implementation date of general insurance to October 1 and life and health insurance to January 1, 2004, Minister of State for Finance James Smith explained that insurance executives requested additional time to make adjustments.
“When the Minister of Financial Services and Investments, Allyson Maynard-Gibson had contacted members of the industry the first time, some said that in the case of the general insurance – meaning like the property insurance – they could pass that on immediately because these policies are renewable every quarter,” Minister Smith said.
“In the case of the life and health, these are by way of contracts which are long term and they found that it would be difficult, so they requested some consideration be given to this. It was considered and they decided that instead of doing it immediately, one set would come into effect in October and the other one in January,” he added.
The hike in insurance premium taxes from 2 percent to 3 percent is among the “moderate taxes” which Prime Minister Perry Christie spoke about during his budget communication.
However, former Prime Minister Hubert Ingraham said during his contribution to the budget debate last week that it is rather cruel to refer to the insurance tax increases as moderate.
Mr. Ingraham suggested that the government revisit the issue.
“I’m surprised that a government which prides itself on consultation didn’t consult more on this issue,” he said. “We made this mistake once in 10 years, not having adequate consultation about a revenue measure.”
By Hadassah Hall, The Bahama Journal
