UNSAR requests deductibility within the limit of EUR 400 for life insurance
 The National Union of Insurance Companies in Romania (UNSAR) requires authorities to introduce deductibility for premiums written on life insurance, with a maturity of more than ten years, within the limit of EUR 400, for the employee and for the employer. UNSAR filed yesterday, at the Government, the Ministry of Finance, the Ministry of Labor and the specialty committees from the Parliament, an official letter in this respect, according to which the limit of deductibility for the income tax (respectively, profit tax for the employer) would be similar to that for the voluntary private pensions segment.
The UNSAR proposal does not include life insurance attached to bank loans and "the buy-back of the contracts before maturity could be taxable retroactively, so that benefits will be paid only to those who use these products for the purpose established at the signing of the contract", explains Cornelia COMAN, Vicepresident of UNSAR and General Manager of ING Asigurari de Viata.
Insurers have had in the previous years more attempts to obtain this deductibility, but they had to face the refusal of authorities, who invoked as a ground of rejection the imposibility of applying deductibility in the conditions of the current flat rate tax system.
According to a study of UNSAR, this measure will stimulate the development of life insurance in Romania, which in 2009 fell by 13% compared to 2008, to RON 1.63 billion, and its share in the underwritings' total decreased to 18.4%. Also, the initiative comes amid a deficit of protection of the population (the difference between the necessary financial resources and the available ones), which reached EUR 98 billion in 2008, up from EUR 43 billion in 2006.
According to the presented study, deductibility would lead to a doubling of the penetration of life insurance in GDP in a period of 5 years, from 0.33% in 2009 to 0.65% in 2015. Without this tax incentive, the expected increase of the penetration would be much lower, of only 16%, in the same period, up to a value of 0.35%.
Also, "gross written premiums could increase by 165% between 2010 and 2015, up to RON 5.3 billion", notes Cornelia COMAN. The corporate segment would benefit the most from the introduction of deductibility (now, it represents 2% of total gross written premiums), registering an increase of over 6 times, while for retail it is expected an evolution of the quantum of the average paid policy, added the quoted official. "Currently, only 10% of the contracts have an average premium of EUR 400 per year and the application of deductibility would rise the share up to 60%", considers the Vicepresident of UNSAR.
Last but not least, the introduction of deductibility will have a positive long term effect on the national economy and on the state budget, shows the UNSAR study. Thus, the growth of insurance companies reserves and, respectively, that of the investments will support the public expenses by investments in state bonds and in municipal bonds, in which there are currently invested over 55% of the assets of the insurers. Also, the additional volume of investments generated by deductibility could reach RON 3.7 billion in the period 2010-2015, and the revenues obtained from the state, in the reference period, will compansate approximately 97% of the public expenses, in present value, and this trigger effect will accelerate over time.
"We are realistic and we are aware that this measure involves changes in the Tax Code, but it also requires many correlations with other normative acts, procedures that take time. We estimate that the deduction could be introduced in the next two years", concludes Cornelia COMAN.
The UNSAR initiative is supported by the Insurance Supervisory Commission, who signed along with the professional association of insurers the official letter addressed to the authorities.
Author: Oleg DORONCEANU
on 23.03.2010
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