National health policy vital - Insurers

By Lalin FERNANDOPULLE

The insurance industry, a key contributor to the growth of the economy is confident that the Budget that would provide a level playing field for all players in the industry. Insurance company heads said that they anticipate the 2013 Budget to give equal opportunities to all stakeholders to create a vibrant insurance industry in the country.

Ceylinco Insurance PLC, CEO and Managing Director, Ajith Gunawardena said that all players in the insurance industry should be given the freedom to court business instead of holding a monopoly. A monopoly will destroy the industry.

He said that there should be a national health policy to make healthcare affordable and save the drain of foreign exchange on overseas medication.

People have to spend staggering amounts on medication. It is a huge burden to those who cannot afford it.

Instead of spending money on free healthcare the government could invest in health insurance and promote it nationwide, he said.

Many developed countries have a national healthcare policy.

Gunawardena said that people should select their policies according to their needs. Certain insurance companies charge a low premium and as a result they find it difficult to pay claims such as finance companies which pay high interest rates but are unable to sustain it. There should be a minimum premium.

"The tariff on premiums was done away to provide more benefits to customers but by doing so unethical practices of premium undercutting have adversely affected the insurance industry. Such practices will erode confidence in the industry. There should be guidelines for premiums not to be undercharged, " he said.

Gunawardena said that the next Budget also should focus on introducing a child healthcare policy to support children of low income families who have been victims of child abuse. Lack of knowledge and affordability are major impediments to develop the insurance industry.

Sri Lanka Insurance Association President Ramal Jasinghe said that the Government has already exempted Reinsurance Commissions and Reinsurance Claim Recoveries from VAT from January 1, 2011. However, many companies have been served assessments relating to past years which runs into large amounts. As this could be a factor affecting the solvency and even survival of some insurance companies, the Association has called upon the Government to take steps to withdraw such assessments raised in the past in line with the exemption granted from 2011.

Regulation of Insurance Industry (Amendment) Act No 3 of 2011 requires all composite insurance companies to split their Life and General businesses into separate companies.

"Action taken by companies to comply with this requirement such as the transfer of assets will result in significant tax liabilities. It may also not be possible to transfer accumulated tax losses from one entity to another. These can result in significant losses to insurance companies. Therefore, it is recommended to waive taxes arising from such transactions and to allow the transfer of tax losses within a limited time frame to effect the changes required to comply with the Act", Jasinghe said.

Ceylinco Insurance PLC Director Technical Jagath Alwis said that life insurance premiums are permitted against income tax with other qualifying deductions subject to a maximum of Rs. 75,000 or one-third of the assessable income.

The Government should consider a separate higher limit for insurance premia as deductions which should include life insurancepremia, pension contributions, health insurance premiums and premia paid for national disasters such as tsunamis under the fire insurance policies taken by individuals. This would improve the insurance industry and people need not depend on the Government in the event of a catastrophe.

All insurance companies should split in to Life and Non life entities by 2014 under the Regulation of Insurance Industry (Amendment) Act. This move will lead to tax complications. There should be provision for the new company set up under the Act to carry forward the tax losses already incurred by composite insurance companies. The stamp duty should be exempted on transfer of assets such as land to the new company.

The Act stipulates that all insurance companies should be listed in the Colombo Stock Exchange by 2016. Smaller companies as a result of the split will face a tough time. Currently there are 21 insurance companies, of which seven are already listed in the Stock Exchange.

A senior official of the state-owned insurance company said that tax concessions should be granted for personal life premia. He said that as individuals cannot claim VAT refunds as corporates do, they should be exempted from VAT from their premia.