Since the Covid-19 outbreak, the insurance industry has been put under the spotlight in France, sometimes being the scapegoat for failing to compensate its insureds. Exceptional tax, insurance premiums frozen, contribution to Solidarity Funds and schemes are all examples of the measures taken. In this blog we detail the different steps taken by local authorities which impact insurers.
Health insurers to be taxed
The 2021 Social Security Budget Law introduces an exceptional tax on health insurance due by insurers. The rate is set at 2.6% for 2020 and applies on all insurance premiums subject to the Taxe de Solidarité Additionnelle (TSA), except those providing daily allowances. For 2021, the rate reduces to 1.3% but may still be amended next year when the 2022 Social Security Budget Law is discussed. The objective is to collect an additional EUR 1.5 billion of revenue. Indeed, it has been estimated that during the first lockdown in the spring of this year in France, claim payments made by health insurers dropped by more than EUR 2 billion, while spending of the national health scheme (Assurance Maladie) has significantly increased. The French government is therefore looking to reduce the deficit of its scheme by making the insurance industry contribute.
Damage insurers to be frozen
The 2021 Budget Law could have implemented a similar measure. A 2% exceptional tax due on damage insurers has been proposed during the discussion of next year’s budget but has been aborted in exchange for a freeze in insurance premium renewals in 2021. This applies to those insureds mostly impacted by the Covid-19 situation (small and medium companies). The insurance industry has accused the local government of blackmail, while the authorities argued that insurers hadn’t done enough to assist small and medium sized business and in particular cover the business interruption caused by the pandemic. Insurers will be relieved that the introduction of online filing for insurance premium tax (IPT) will not now happen in 2021. For now, unless further delayed, it’s planned for 2022.
Solidarity Fund and Catex scheme
The French insurance industry has already contributed EUR 400 million to a Solidarity Fund during the first wave of Covid-19. The objective was mainly to compensate small and medium businesses for business interruption caused by the pandemic as many contracts excluded such cover. In addition, the industry estimates that it has also paid more than EUR 2 billion to cover the business interruption suffered by its insureds due to lockdown measures.
As we see, dialogue between local authorities and insurers appears tense. But looking at the longer term, both sides seem to agree on the need to implement a scheme that could cover the pandemic risk based on a partnership approach. Some months ago, the French government asked the insurance industry to propose future solutions to cover pandemic risks. Discussions are still ongoing, but the emergence of a Catex (Extraordinary Catastrophes) scheme built on the experience of the CatNat regime and the GAREAT pool could be an approach that suits both insurers and the French authorities.