A leading Bahamas Insurance Association (BIA) official yesterday warned that the stacking of value-added tax (VAT) on top a preexisting but little known three percent tax on insurance premiums ran the risk of driving persons to drop their coverage, in a move that "in essence" equated to double taxation.
Vibert Williams, managing director of NAGICO Insurance (Bahamas), told Guardian Business that the insurance sector expected to lose clients over the 7.5 percent VAT increase to insurance premiums that came into effect yesterday, which he said ran the risk of increasing the burden on the government's "social safety net".
"It's been fairly secret up to now but on your homeowners' insurance premium, or on your car insurance premium, or on your liability insurance premium, whether or not you know it you have been paying three percent premium tax. It has been in there but it's always been lumped into the final bill that you see... VAT goes on top of your existing premium tax so you're actually getting a bigger increase," he said.
The VAT combined with a longstanding three percent premium tax now means that customers now pay a 10.5 percent tax on their insurance premiums. Although Williams said that many in the industry have lobbied to have the three percent tax removed, the sector has largely accepted it was "fait accompli" for the insurance sector.
"We would like to see it removed but I think we are resigned to the fact that it's not going to be and we are preparing our systems accordingly and... we hope that we are preparing the public as well for a larger than expected increase, certainly for the non-VAT registrant clients.
"We do expect to lose some [business] but we can't quantify it. In addition to all of that the cost for the insurance companies - the compliance costs, the systems costs, the amendment - have all increased our cost of business... so it's going to be an interesting six months as we watch how VAT on insurance plays out," Williams stated.
Regarding the "social costs" as a result of any potential dropped clients, both Williams and Vice President of Finance for Colina Catherine Williams urged clients to meet with their insurers before dropping coverage.
"Those costs, which would normally have been borne by an insurance company, are now picked up by the social safety net and so we need to be very careful about how we increase costs on the insurance business," he said, noting that insurance was typically one of the first services to go in tough economic times," said Mr. Williams.
"One of the things that we are concerned about is that people... underestimate the impact of insurance as a safety net," said Ms. Williams.
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