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Opinion: The impact of Taxation

There is a bugbear lurking in the bushes just up the path a little for the life insurance industry and people don't really want to talk about it. It's Taxation. Yes – capital "T". Because while the rest of us will be getting our 'block of cheese' tax cut in September, life companies will shortly face a big tax hike.

Tuesday, June 17th 2008, 6:00AM

by Russell Hutchinson

Of course, some say they've been creaming it for too long with an ancient old tax regime built for the days of whole life contracts. That's not important. The important thing is the direction and what it will mean for clients, advisers, and life companies – we're all in this together, right? Maybe not.

One chief executive I spoke to last week said to me that premium rates would need to rise 20% if he were to cover the tax hike on life companies through premium increase alone. Of course the big word is "if". The money has to be paid – but how it gets paid is another matter. Premiums could go up; adviser commission could go down; life company profits could go down; and life company expenses could go down. Or some combination.

Ministry of Economic Development people have been known to say 'the life insurance industry is inefficient'. You'd think to hear it that there was heaps of fat in the industry and the tax impact could all be swept up nicely from within the business. My prediction is that this won't be the case. There will be impacts – on premiums, commission, internal costs, and profit. It will be a messy 'discontinuity' – an event that will change the industry. Combined with other proposed law changes it may make the difference between some companies having a future here – and some not.

« Opinion: Insurance brokers can hold their heads up highOpinion: What counts? Head or heart? »

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