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International Health Insurance & European Insurance Premium Taxes (IPT) - A Damp Squib or an Administration Time Bomb ?
As from today's date*, the Financial Services Authority, (FSA) takes over the Regulatory responsibility for General Insurance selling and the role of Intermediaries and Brokers in that process, across the United Kingdom.
The Private Medical Insurance Brokers and Intermediaries have been compliant and regulated since mid 2000 by GISC (the General Insurance Standards Council) across the UK but the new era of the FSA may well prove to be more difficult for those who do not prepare their systems and train their staff. Customers and Clients have very serious sanctions available via the good offices of the FSA, for those Advisors who may mislead, miss-sell or offer "Bad Advice" for the sake of short-term best commission plans and products.
The FSA potentially represents a tougher regime with real teeth, to the Health & Medical Insurance Industry as a whole. As Client Advisors and Independent Specialist Brokers, we shall need to demonstrate "Best Practice" and transparency at all stages of our customer and complaint handling procedures. |
International Health Insurance & European Insurance Premium Taxes (IPT) - A Damp Squib or an Administration Time Bomb ?
Compounding the issue of the FSA takeover as Regulator (from the GISC) comes the EU bringing in of new IPT taxes (Insurance Premium Tax) from January 2005 also. Most General Insurance policies will come under the auspices of the FSA from 15 January 2005 such as motor and home insurance. Private Medical Insurance (PMI) and also Permanent Health Insurance (PHI) will also come under the new Regulator. Travel Insurance bought separately will also be come under FSA rules.
Any Firm or Company that sells insurance or advises on PMI or PHI will require FSA authorisation to conduct business, or be an Agent of an FSA authorised company. These new rules and regulations will however expand to cover the European Union (EU) in time, with the FSA amalgamating or implementing the EU Insurance Mediation Directive, across a UK based remit naturally. Therefore, any company based in the UK selling PMI within the UK or the EU will be subject to FSA regulations.
There has been considerable confusion in the PMI Industry of late, as to the impact of IPT taxes on corporate, group and individual Health Insurance business in future and the collection of such taxes within the EU. As IPT varies considerably, country-to-country throughout the European Community, this means that differing Clients of differing passports and locations within the EU may receive differing IPT tax treatment. A potential nightmare for companies to administer.
What will new FSA rules mean in practice?
As mentioned earlier, both Health Insurance Plan Providers and their Agents, Brokers or Intermediaries MUST all be FSA regulated in the UK if they wish to sell or advise Clients on PMI or PHI from 15th January 2005. They will be required to send potential clients and consumers a "Key Facts" document which sets out the premiums, the terms of the insurance policy and any "significant or other unusual exclusions." Customers will get these documents whether or not they buy direct or via an Intermediary or Independent Broker.
Clients will have the right to cancel up to 14 day after taking out a health insurance policy. Health & Medical Insurance Brokers can choose between one of two routes, a) Offer the Client a full advice service and give recommendations b) Suggest a list of Plans, leaving it to the Client to decide.
Where Brokers do give advice however, they are required to show that the policy is suitable for a client's needs. That will mean a clear benefits/cost analysis, not just a drive for sales at high front-end commissions!! The Client's rights to be properly informed and to make decisions based on full advice, will be issues that the FSA will no doubt monitor carefully. If advice is not satisfactory in the Clients mind, they may take Insurance Providers and/or Brokers to the Insurance Ombudsman service. Until today, the Ombudsman was able to investigate complaints against Insurance Companies, but can now under the FSA umbrella, include Independent Health & Medical Insurance Brokers.
Such Advisors will need to state in "Key Facts" documents sent to Clients, whether or not they offer plans from a range of insurers, a limited number of plan providers or a single insurer/provider. Many Brokers may choose the " no advice" route, particularly those selling insurance plans directly via the Web. By not offering advice, Brokers may then by pass the little known rule of "Agency Law" which calls upon Agents to disclose their commissions, if asked by Clients. I do feel that the FSA Regime may help however, to prevent the aggressive "Brand Push" techniques of some PMI Sales Agents and Providers, who offer their sales people very high front end commissions. Proper transparency, genuine choice and comparisons of PMI and PHI will go a long way to build and restore Public confidence in those who purport to give "Best Advice"
Will private medical Insurance premiums rise?
It is quite likely that the rise in "Red tape" and compliance with FSA rules will mean rises in premiums. Some in the Industry feel that premiums could be raised as much as 15- 20% but others feel that competition, particularly across Europe, will create tougher competition and keep costs down.
Insurance premium taxes across the European Union
Who will be responsible for collecting such taxes from Clients? Who will then be responsible for paying the appropriate National Government Treasury Department? I have enclose the published data from three International Medical Insurance Providers who offer plans "Pan European" wide. The new dilemma for Clients and the Industry alike will be where IPT taxes should be collected and paid? Group PMI contracts may hold 100 employees, some in London, some in Paris, some in Belgium Greece, Luxemburg and Germany. These employees could well hold a range of EU Passports and Rest of World passports. These new taxes may well be the responsibility of the Insurer to collect, but how do we calculate where and what payments are made to the appropriate EU State.? Published literature and statements from Good Health Worldwide, InterGlobal Health Insurance and A La Carte Healthcare follow.
Good health Worldwide states in their December 2004 Newsletter " The Legislation- the CEA ( Comite Europeen Des Assurances) Codification of European Insurance Tax Directives- requires that local premium taxes in certain EU States must be accounted for. These taxes are generally the ultimate responsibility of the insured, but the insurer must undertake the collections and pass them to the relevant authorities. It is important to note that there is a possibility that you (the Broker) or your Client could be held liable for the payment of any taxes due, if they are not collected by the insurer."
InterGlobal states in a letter to all its Brokers dated November 2004 " As a result of embracing new EU Legislation, we are now in a position which demands we account for local premium taxes applicable in certain EU States. Such taxes are, in most cases, the responsibility of the insured. But, the onus of this legislation is for the insurer to collect any applicable taxes and pass them on to the relevant authorities. All PMI Providers need to ensure that provision is made to collect and pay these taxes under the CEA Codification of European Insurance Tax Directives. It is important to note that if any taxes are due, are not collected by the insurer, then there is a possibility that you (the Broker) and your client could be held liable."
A La Carte stated in a recent Broker email on the subject of EU IPT taxes " The Court of Justice and the Court of first Instance of the European Court decided that taxes are payable on, inter alia, health insurance premiums, according to the law of the country where the risk is situated. This means that where individuals (covered under individual or group contracts) are resident in a EU Country, the premium, or proportion thereof, will be liable to local taxes. This ruling applies whether the individuals concerned are expatriates or local nationals"
This is the "time bomb" of red tape and contract administration, which I mentioned at the outset. With EU countries not presently aligned regarding their IPT taxes published, how do Brokers, Clients, Groups and Insurance Providers administer a range of several taxes for their moving base of clients around the EU?
The rates of IPT taxes from January 2005 onwards
The following IPT rates have been published by Good health Worldwide recently applicable to EU Countries Belgium 9.25% premium tax, Cyprus, Nil tax, Denmark 14% stamp duty, France 7% premium tax, Germany nil premium tax, Greece 10% premium tax + 2.4% stamp duty + 1% TEAA for a total of 13.4% (paying for the Olympics perhaps?) Italy 2.5% premium tax, Luxemburg nil tax, Malta nil tax. Netherlands nil tax. Portugal total tax of 6.3%, Sweden nil tax, Switzerland Nil tax and the UK 5% premium tax. In an expanded EU Zone the full list mentions 29 countries in all.
Overview
Clearly, with the EU seeming to hold both insurance providers, brokers and clients jointly and severally responsible for paying these taxes to the various State Governments, we will have a bureacratic nightmare to deal with. Tax harmonization is therefore essential for the EU based International Health Insurance companies and their clients. Brokers and independent PMI specialists need to be particularly aware that any Plans they sell or advise clients to buy, collect IPT properly and are fully regulated, if based in the UK by the FSA.
*This article was first published on
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