The announcement of a 21% VAT on non life insurance policies in the 2024 budget has led to a gradual shift from comprehensive motor insurance subscription to third party.
This is in spite of the fact that its implementation has been put on hold, some industry players have told the Graphic Business.
As part of the raft of new taxes announced in the 2024 budget to shore up government’s tax revenues to meet sub-regional average, a 21% VAT was imposed on non-life insurance policy but this seem to be having a toll on the industry.
The players who spoke on grounds of anonymity did not immediately provide figures but said they were beginning to notice a trend where vehicles owners who were previously on comprehensive motor insurance policies were now opting for third party.
They cautioned that until the policy was permanently withdrawn, it would hit hard at the motor insurance business which constitutes about 60 per cent of their business.
“If we go ahead and implement VAT on non-life insurance including motor which constitutes about 60 per cent of our businesses, it will have a dire impact on the industry.
One of the implications is that, people may not buy the motor insurance at all. But what we are noticing now is that people are moving from comprehensive policy to third party and all that will have direct implications on the sector,” one said.
He said just by the mere announcement of the policy, people have started coming to them to change their comprehensive motor insurance policies to third party.
Role of trade bodies
Another industry player said the information regarding the introduction of the tax was picked by the trade bodies even before the regulator got to know and therefore lobbied the various transport unions to kick against it.
“What happened is that the trade bodies took it up and started lobbying the GPRTU and other transport unions to resist it.
“It should have taken effect from January 1, but as a result of the lobbying there is a hold on it and we do not know when it might be re-introduced or scrapped entirely,” he stated.
He also emphasised that the mere announcement of the implementation of the policy led to some panic from some section of the insuring public who have started switching to third party policies.
He said the various stakeholders in the sector were still compiling data on what the full impact of the VAT on non-life insurance would be if not fully withdrawn.
New minimum capital
The insurance sector has been going through some challenges in the last couple of years, with some local insurance companies still yet to meet the new minimum capital requirement set by the National Insurance Commission, which deadline expired on December 31, 2021.
The NIC in June 2019 announced a new capital requirement for insurance companies operating in the country after a series of consultations and discussions between the industry players and the regulator.
The stated capital for life and non-life insurance companies moved from GHȼ15 million to GHȼ50 million, with that of reinsurance companies also moving from GHȼ40 million to GHȼ125 million.
Insurance broking companies had their stated capital also increased from GHȼ300,000 to GHȼ500,000, while that for reinsurance broking companies was maintained at the current GHȼ1 million.
All the companies were expected to meet this new requirement by June 30, 2021. However, six months to the deadline, the NIC extended the deadline by a further six months to January 2021 due to the outbreak of the COVID-19 pandemic which hit hard at businesses all over the world.
Although the NIC is yet to make an official statement on the development, the regulator has been engaging with the affected companies to resolve the issues in a way that will protect the image of the industry, protect policy holders and save jobs.
Experts, therefore, believe the introduction of additional taxes on insurance products would worsen the woes of the industry.
