CEA calls for EC tax proposals to differentiate between insurers and banks

12 October 2010
by CEA -- last modified 12 October 2010

The CEA, the European insurance and reinsurance federation, believes that today’s Communication from the European Commission on Taxation of the Financial Sector fails to differentiate appropriately between different types of financial institutions.

The EC Communication recommends a Financial Activities Tax (FAT) at EU level, which would target the profits and remunerations of financial sector companies. The Communication also supports the idea of a Financial Transactions Tax (FTT) at global level.

"A primary aim of the Commission in proposing this taxation is to ensure that institutions that bore responsibility for the economic crisis contribute to fiscal consolidation in its aftermath. The insurance industry was not the source of the crisis and should therefore not be included in these proposals," said Michaela Koller, director general of the CEA.

Insurers would also be unlikely to be the recipients of any future government interventions due to their stronger capacity to withstand stress conditions and the existence of orderly wind-up procedures in the insurance market. "Any kind of cross-subsidisation of other financial sectors is inappropriate and could create moral hazard," added Koller.

The Commission Communication also states that one of its policy goals is to "improve the stability of the financial sector by dissuading it from carrying out certain risky activities". It must be remembered that insurers, with their stable, up-front and long-term funding, have a fundamentally different business model to that of banks. Core insurance activities do not generate systemic stress and, indeed, insurance plays a stabilising role in the economy.

"Insurers' contribution to a stable and successful European economy must not be inadvertently harmed by the inappropriate read-across of regulation aimed at other sections of the financial services sector," insisted Koller.

The EC Communication suggests that the financial sector could also make "a fairer and more substantial contribution to government finances" on the grounds that most financial services are exempt from VAT in the EU. The CEA believes that this argument fails to take account of the alternative indirect taxation applied to the insurance sector to compensate for the VAT exemption.

The CEA urges the Commission to take full and fair account in its proposals and forthcoming impact assessment of the distinct insurance business model and of insurers' positive role in the economy both during and since the crisis.

For further explanation of the distinct business model of insurers, please see the CEA's June report "Insurance: a unique sector — Why insurers differ from banks".

The CEA is the European insurance and reinsurance federation. Through its 33 member bodies — the national insurance associations — the CEA represents all types of insurance and reinsurance undertakings, eg pan-European companies, monoliners, mutuals and SMEs. The CEA, which is based in Brussels, represents undertakings that account for around 95% of total European premium income. Insurance makes a major contribution to Europe's economic growth and development. European insurers generate premium income of over EUR 1,050bn, employ one million people and invest more than EUR6,800bn in the economy.

CEA, the European insurance and reinsurance federation