Impact on insurance premiums of increases announced by the government

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Impact on insurance premiums of rate increases applicable to the tax on auto insurance premiums, the compensation tax for financial institutions and the tax on capital for insurance corporations announced by the Quebec government

On December 2, 2014, the Quebec government published its Update on Québec’s Economic and Financial Situation. Two of the measures introduced in the economic recovery plan will affect insurers, i.e. the increase in the temporary contribution relative to the compensation tax for financial institutions and the increase in the tax on capital for insurance corporations. Accordingly, the temporary contribution rate for the compensation tax on insurance premiums and the amounts established in respect of the Insurance Fund increase from 0.30% to 0.48% as of December 3, 2014 until March 31, 2017. After this date, and until March 31, 2019, the rate will be reduced to 0.30%.

For taxation years ended after December 2, 2014, the tax on capital for insurance corporations carrying on business in Quebec, calculated on the amount of premiums related to life, health or physical well-being of insureds, increases from 2% to 3%. The increase also applies to premiums paid to agents under uninsured employee benefit plans. The tax is calculated for a 12-month period or a taxation year. For a 12-month period or taxation year straddling December 2, 2014, the tax is prorated to the number of days following that day. The capital tax rate for other insurance products remains at 3%.

Even though these taxes are payable by insurers, they are considered operating expenses and are usually taken into account when setting insurance premiums.

Impact on individual insurance plans

The Order contacted insurers about Order-sponsored health, dental, life, disability and critical illness insurance plans. They agreed not to adjust current plan rates before the next renewal. However, these costs will generally be allocated to each plan’s current year financial results, and will be considered in rate negotiations for the subsequent year.

Impact on group insurance plans

As for group insurance plans for firms, insurers agreed to adjust their rates as of March 1, 2015. Retroactive costs relating to short-term disability, health and dental benefits for the period of December 2, 2014 to February 28, 2015 will be allocated to the plans’ financial results. Insurers will absorb retroactive costs of other group benefits.

Auto insurance

Carlos Leitão also announced on December 2, 2014 that the tax rate on auto insurance premiums will be raised from 5% to 9% on January 1, 2015. Given that this tax is payable at the same time as insurance premiums, the increase applies to all premium payments due after 2014.

Since many insureds take advantage of staggered insurance premium payments (an option offered by insurers), the increase applies to payments made as of January 1, 2015.

In order to give companies time to change these rates in their computer systems, the Ministère des Finances has agreed to grant them an extension until June 30, 2015 to collect the amounts attributable to the 4% tax increase applicable to premiums paid as of January 1, 2015.

Therefore, insureds should expect to receive a notice shortly from their insurers informing them of the effects of the tax increase and the additional amounts that will be deducted from their bank accounts as a result.

Suzanne Mercier, CPA, CA
On behalf of the Insurance committee