Insurers: VAT increase, the heaviest blow

The decision to raise VAT by 5% is a heavy blow for insurers, whose costs will soar, in the context where they are just VAT payers, unable to recover the tax as their tariffs do not include it. Unlike the insurance industry, other industries have an offsetting possibility: firms cash in VAT for sales and pay VAT for various acquisitions, and depending on the difference between the two sums they either have some VAT to recoup from the state, or to pay. Insurers say their profits will be hammered on the rising costs and their sales will suffer, as clients’ purchasing power will decline. At any rate, the insurance market has been struggling with losses in recent years, which reached 25m euros in 2009. Companies are in the red despite constantly rising tariffs for car insurance, their main line of business, each year. In 2009, general insurers settled total claims worth 5.18bn RON (1.22bn euros), and the level will be similar, perhaps slightly lower, in 2010. Raising VAT from 19% to 24% would push up claims expenses by around 100m RON (25m euros) starting July, when the hike comes into effect, until yearend.