Friday, January 12, 2018
By NEIL HARTNELL
Tribune Business Editor
THE Government cannot "damage our revenue position" in seeking to making catastrophic insurance coverage more affordable, the Deputy Prime Minister said yesterday.
K P Turnquest told Tribune Business that the increasing cost of hurricane protection was "of great concern" to the Government as well as homeowners and businesses, but demands for Value-Added Tax's (VAT) removal from property and casualty premiums left it with a difficult 'balancing act'.
Speaking after Bahamian insurers warned their clients to brace for a 15-20 per cent increase in premium costs this year, Mr Turnquest said: "This is an issue that we have been concerned about even before the election, and one that is of great concern to many Bahamians.
"We don't have to go through the issues that are put on the Government, or the burden put on the Government, as a result of the increasing number of residents that are not insured or under-insured because of the cost of coverage today. Mr Turnquest added that rising catastrophe insurance costs were not both an immediate and long-term concern for the Government, "as in a major event the cost would come back to the Government of the Bahamas"
"To the extent we can strive and encourage individuals and entities to secure third party coverage, that is obviously a very desirable position for us," he added. "The exposure of the Government to individuals who do not have coverage or are under-insured is significant, and you can't really plan for that."
Hurricane Matthew illustrated the kind of burden that will be imposed on the Public Treasury and Bahamian taxpayer due to the reduction in insurance penetration, the Deputy Prime Minister yesterday revealing that the Government had spent more than $10 million repairing private homes that were either not covered or under-insured.
Hurricanes Irma and Maria, the two storms that devastated large parts of the Caribbean and Florida in 2017, have prompted 2018's major increase in reinsurance costs as companies look to recoup $135 billion in disaster-related payouts from last year.
Given that Bahamian insurers, with their relatively thin capital bases, have no choice but to purchase huge quantities of reinsurance to help them underwrite billions of dollars in risks annually, this nation is effectively a 'price taker'. Local companies are thus forced to pass on increased reinsurance costs to their clients, hence this year's 15-20 per cent premium rise.
To mitigate these increased costs, property and casualty insurers have again urged the Government to examine removing VAT from insurance premiums - especially since the Bahamas is one of few nations that impose it on this product.
Mr Turnquest, though, said the Government had to balance its revenue and fiscal needs with any desire to make property and casualty insurance more affordable for Bahamian consumers.
"We are working through this issue with the industry as best we can to come to a meeting of minds," he told Tribune Business. "We are very concerned about the impact this will have, the significantly increased cost of reinsurance, on individuals' ability to acquire insurance.
"We are looking at the problem, and willing to take whatever suggestions might be put forth without damaging our current revenue position."
Mr Turnquest added: "It's like all the policy choices before us: None of them are easy. It's always a trade-off between providing advantages to the consumer and taking care of our fiscal responsibilities.
"We have had several sit downs with the insurance industry, and continue to have an open door for further discussions on how they see us moving forward in this regard. We are all about the ease of doing business, being competitive and making sure the product is affordable to consumers, but at the same time we have responsibilities as a government."
The Bahamian insurance industry has also expressed concern over a $30 million VAT refund owed on its Hurricane Matthew claims payouts, but Mr Turnquest yesterday indicated the Ministry of Finance was disputing the amount and some of the requests.
The Deputy Prime Minister added that the Government's position was "supported by the law", and he urged insurers to use the appeals process if they believe they have been wronged.
"We have addressed the issue of VAT refunds with the insurance industry," he told Tribune Business, "and explained to them our rationale, and how we derived our position.
"We believe we are in accord with the VAT legislation, and to the extent they still have a discrepancy there is an appeals process they can avail themselves of."
He added: "We believe that our position is supported by the law. Again, there are varying cases, so there are some that are owed legitimate refunds that we can support, and others we have questions about.
"They [the insurers] are fully aware of our position, and it's a matter of them lodging any objections they may have so it can be dealt with appropriately."
Mr Turnquest acknowledged that there were still numerous outstanding VAT refund claims from other industries and companies, and said: "We are working our way through them with a view to settling them as quickly as we can. That's our commitment."