Insurance prices start increasing in Slovakia, following the new 8% levy on the non-life insurance premiums
In the end of 2016, despite the counterarguments presented by the Slovak insurers' association, the Finance Ministry introduced an amendment to the act on insurance providing for charging a fee of 8% on the insurance premiums for all the facultative non-life insurance lines, not only on the MTPL premiums as before, to boost revenues to the state budget as the sector had not been subject to taxes on such products before.
Before the amendment was passed, the ministry estimated that the state could earn up to EUR 80 million by introducing the 8% special levies to compensate for the lack of VAT in the insurance sector. Yet, as for the period between January and November, insurance companies will pay levies in December 2017 and for December in January 2018, the positive effects on the public budget are yet to be expected. For the time being, economic analysts see only a small amount of new revenue flowing to the state budget, not even percentage points of total state expenditures, in comparison with the extremely negative impact the levy may have on the market, writes the Slovak newspaper, quoting Robert CHOVANCULIAK of the Institute for Economic and Social Studies (INESS) think tank who reminds that "in the economy, nothing like a free lunch exists." "If politicians increase taxes on certain products, either the consumer will pay them via higher prices, or the provider will provide the consumer with lower quality service," Chovanculiak told The Slovak Spectator.
However, during the approval process of the amendment, the Slovak Insurance Association (SLASPO) argued that such a non-systematic solution will take part of insurers' sales without a chance to take the costs into account similarly to taxes, and mainly will covertly burden their customers. The levy does not serve for rehabilitation of the insurance market or dealing with its problems, as opposed to the existing bank levy, said SLASPO's general director Jozefina ZAKOVA.
One of the most discussed negative impacts of the levy is the rise in costs of non-life premiums. Since the act came into force, Slovak insurance companies have started increasing the premiums for some types of non-life insurance products, MTPL, travel insurance, liability insurance of employees and insurance for real estate and households, according to Maros OVCARIK, executive director of the Financny Kompas website. "Some of the policies became more expensive only by a few percent, however, other premiums increased by 15 percent and more," OVCARIK told The Slovak Spectator.
SLASPO representatives have said that there are several reasons for the insurance prices' increase, many of them of an actuarial nature linked to the insurers' own portfolios. Yet, the 8% has a significant role to play. The new tax may also cause consumers' dissatisfaction, as although its application was limited to the new contracts concluded starting January 2017, it will also affect the contracts renewed for which usually consumers were used to pay the same price as in the previous years.
If the levy is reflected in increased prices, the situation will automatically lead to lower demand for insurance products and a subsequent increase in risks for many households, according to CHOVANCULIAK. ZAKOVA points to the threat of stagnation and reduction of insurance coverage in Slovakia, adding that the government should even consider a possible increase in the number of people depending on the state as more may ask for state compensation in cases such as natural disasters. "The motivational and educational role of the state towards citizens received a significant blow in the introduction of the levy," ZAKOVA said.