The position of the Polish Insurance Association on tax on some financial institutions.
The information on works to introduce in Poland a tax on some financial institutions which is also to affect insurance companies has recently been revealed by both the representatives of the parliament and government administration. The Board of the Polish Insurance Association receives this news with great anxiety.
1. The financial situation of insurance companies, especially property insurance companies, is currently very difficult. After three quarters, the technical loss in property insurance exceeds 1.1 billion PLN. The main reason for this situation is high compensations connected mostly with last year’s flood, a severe winter and a very difficult market environment. In 2010, insurers paid 1.6 billion PLN as compensations for over 260 thousand flood losses. The bill which is currently in the Sejm (the lower association of the Polish parliament) spells charging insurance companies with an amount of over half a billion PLN per year, which will contribute to worsening their situation. It will directly affect the safety of the injured and insurance companies will have no other choice but to charge clients with the costs of the possible tax.
2. All legal solutions adopted recently have worsened the profitability of insurers which have to face additional challenges connected with the European model of solvency which is much more restrictive – Solvency II. In the European Union, the works on common insurance guarantee system which will additionally raise the costs of doing insurance business are currently being taken.
3. Insurers have proved that in times of crisis they play a role which stabilizes and protects the economy through careful management of assets and insurance protection which includes, among other things, the risk of losing a job, not repaying a loan or bankruptcy of a contractor.
4. Levying a tax on the entirety of assets also affects the resources which are to cover the obligations towards clients and the injured and, in the case of long-term insurance, the capital gathered for the insured. The tax will make the calculation of risk of paying compensation made while concluding the contract outdated. It will create a system risk for insurers which undertake long-term obligations towards their clients and are obliged by law to exercise all due care in the valuation of these obligations.
5. The insurance market constitutes around 4 percent of the Polish GDP and the insurance sector invests its assets almost exclusively in safe debt securities issued by the Polish state. Introducing the tax will limit the capability of insurance companies to invest their resources in safe securities. As of today, approximately 13 percent of the debt of the State Treasury connected with the State Treasury securities is made up of the assets of insurers.
6. The insurance market is, above all, 130 thousand people creating it. Additional tax charges might trigger the necessity of staff reduction and, at the same time, increase of the national budget charges.
7. Poland is one of the countries in which the tendency for people to voluntarily take out insurance is very low. Greater tax charges and, consequently, higher prices will trigger a situation where fever and fever people will be able to afford to insure their most prized values – life, health and property. Fewer people will also be able to afford to save for their future by buying voluntary pension products.
8. The national budget must be ready and aware of the fact that the fewer people can take out insurance, the greater the state compensations, for example, for natural disaster losses.
9. In times of crisis, the Polish insurance sector did not take advantage of any public help. Meanwhile, in the countries where such a tax has been introduced, it is a consequence of public help given to financial institutions of a given country.
10. The Polish insurance market is one of the most regulated markets, that is why insurers already suffer high costs of operation of such institutions as the Insurance Guarantee Fund, the Polish Financial Supervision Authority, the Insured Ombudsman and the Voluntary and State Fire Services. Insurers are also financing the construction of the Central Register of Vehicles and Drivers for which they have paid over 430 million PLN over the last 7 years.
Given all the afore-mentioned elements, the Board of the Polish Insurance Association appeals to all Parliament and government members to make a decision on not introducing the new tax in Poland which would affect insurance companies and other financial sector companies.