Tax relief reinvigorates life insurers

MANILA, Philippines - The removal of the five percent premium tax and the 0.25-percent documentary stamp tax (DST) on life insurance policies could mean the continued survival of the country’s life insurance industry.

By 2015, the floodgates will be opened or liberalized to insurers from the Association of Southeast Asian Nations (Asean).

Life insurance companies from Malaysia, Thailand, Indonesia and Singapore are relatively stronger, better capitalized, better trained than their Philippine counterpart.

“How can we compete when we are burdened by a stifling tax environment, as well as rigid investment options?” members of the 35-strong Philippine Life Insurance Association (PLIA) said.

Malaysia has at least 300,000 sales representatives in the life sector, Vietnam has 100,000, while the Philippines has a little over 30,000.

Swiss Reinsurance Co. said that the country’s ratio of yearly direct premiums to gross domestic product (GDP) or life insurance penetration, is 0.71 percent. In contrast, the penetration rate reached 1.86 percent in Thailand, 3.38 percent in Malaysia, and 8.85 percent in Japan.

“And we are still competing with the foreign insurers who have found creative ways of selling policies to high-value Filipino individuals, which deprives government of tax revenues and premiums to Philippines insurers,” they added.

Most Asian nations do not charge premium taxes, while others slap a one-time, one-rate DST.

Removal of the two tax forms could result in better sales for private insurers and more tax revenues to the government do to improved sales.

Only 13 percent of the country’s population has one form of life insurance. Five to seven percent of those insured hold privately-issued policies while the majority of policyholders rely on government agencies like the Social Security System (SSS) and the Government Security and Insurance System (GSIS).

“And half of the privately-issued policies are group insurance which is lower than individual policies, in terms of protection,” Victor P. Quisumbing, PLIA president said during the formal launching of the annual Insurance Conciousness Week yesterday.

Two congressional bills have already been passed in the two chambers of Congress, and the industry is hopeful that it will be signed into law by the end of October.

“The legislatures are optimistic is will be a law soon,” Quisumbing added.

Premium rates have been increased several times since the late ‘90s due to the tax burden and the poor investment climate. Insurers assured that another rate hike is not in the horizon.

At one time, international credit rating agency Standard and Poor’s (S&P) gave the Philippine life insurance industry a ‘negative’ rating, due mainly to weak capitalization and low profitability due to tax burdens.

In contrast, it gave a ‘stable’ rating to Thailand, Indonesia, Malaysia, Taiwan, Singapore, Korea, India, Hong Kong, and Australia.

In the same period, it gave the Philippine and India was given a ‘high’ rating in terms of economic and industry risk in the life insurance. But it gave Indonesia and Vietnam a ‘very high’ rating.

But it gave a ‘best’ ratings to Australia, Singapore, Hong Kong, Japan, New Zealand, Malaysia and Taiwan.