The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers would “prefer” to be ‘zero-rated’ rather than ‘exempt’ under the proposed Value-Added Tax (VAT), with several expressing concern that consumer premiums would increase if claims costs rose.

Tim Ingraham, Summit Insurance Company’s president, told Tribune Business that ‘zero-rating’ would “be our preference” as it would allow insurance underwriters and intermediaries to reclaim VAT paid on their inputs while also not charging it to consumers.

Pointing out that other countries that had introduced VAT had also made insurance ‘zero-rated’, Mr Ingraham said: “We’re still waiting for the final word from the Government on how exactly it [VAT} will be dealt with, but it’s a concern for us.”

The insurance industry is set to meet with the Ministry of Finance imminently on VAT, and possibly as early as this week.

The sector is currently bracketed with other financial services as VAT ‘exempt’, meaning that while its members would not have to register to pay VAT or add the 15 per cent levy to consumer bills, it would be unable to claim refunds for VAT paid on inputs.

This raises the spectre of cost increases for the insurance sector, which would likely be reclaimed - to some extent - by premium increases for consumers.

“If our costs go up by 15 per cent automatically as a result of that, there’s no other source of revenue other than premium income, so we have to look at that,” Mr Ingraham said.

While property claims were not such a major issue because they were shortlived, and did not stay on an insurer’s books for many years, Mr Ingraham said any cost of living increase might impact bodily injury claims.

Similar sentiments were expressed by other Bahamian property and casualty underwriters.

Terence Rollins, Security & General’s general manager, said the underwriter was in “watch this space mode” as it awaited the final VAT proposal from the Government.

While acknowledging that the promised ‘offsetting’ reduction in Customs duties might mitigate VAT’s impact, Mr Rollins said that if it resulted in an increased tax burden for insurers that put upward pressure on claims costs, premium prices would rise.

“Our fear at the moment is that it will put up claims costs. And unless we put up premiums, we will not be adequately funded,” Mr Rollins told Tribune Business.

Tom Duff, Insurance Company of the Bahamas (ICB) general manager, said that with “so much uncertainty” over the final form VAT would take it was difficult to assess the impact on the general insurance industry.

However, he acknowledged that the new tax would “clearly have a very significant impact on how we do business.

“If for example, our motor insurance claim costs are subject to VAT and we are exempt, we can’t claim that back,” he added.