2024-09-06 18:05:21
Decree No. 777/24, issued on September 2, reduces PAIS rates for imports of certain goods and services, causing concern in some sectors of the economy. In terms of insurance activity, there are many questions about how this measure will achieve the expected reduction in insurance prices. Unfortunately, the answer is not what policyholders want to hear..
This week’s decree only reduces rates for freight and transportation contracted abroad and for some goods procured in Mercosur, However, the reinsurance rate is maintained at 25%. Specifically, for insurance activities, there will be no changes until at least December 28, 2024 (the tax settlement date mentioned above).
This has a double meaning. 1. Additional reinsurance costs continue to increasean extremely important input for the insurance of economic activities such as agriculture, industry, construction and public works. The second is to maintain the existing gap The difference between the dollar value paid as reinsurance premium (price) and the dollar value charged in the event of an accident. Pay official USD value plus 25%, charge official USD value. This gap creates a mismatch that must be compensated by increasing insurance prices to maintain account balance.
25% This is the PAIS rate paid to pay for reinsurance on foreign contracts.
One could argue that the already publicized reduction in zero-kilometre car prices should mean a similarly proportional reduction in insurance prices. Again, it seems that these expectations will not be met. This situation deserves your analysis.
The first thing to keep in mind is that some (a few) vehicles only have price reductions of around 2% to 4%. This is easily noticeable at high prices, but at lower prices, such as the premium (price) of insurance, it is almost irrelevant.. However, some may insist that premiums should be lowered.
Therefore, it is important for policyholders to know that when they purchase “auto insurance”, they are purchasing multiple insurances included in one policy, and the price of each insurance is calculated separately. The usual “complete third party” insurance is a combination of three types of insurance: “theft and/or theft”, “total destruction” and “civil liability”. The reduction in vehicle value only affects the first two items, but has no effect on civil liability insurance, which happens to be the most important of the three.. The final piece of coverage involves what’s known as “life value,” which is the price paid for injuries caused to third-party accident victims.
The eventual reduction in vehicle value due to the reduction in PAIS tax will have no impact on civil liability insurance.
Specifically, the impact of reducing the PAIS tax rate on imports of certain vehicles or auto parts, It can only have a very minor impact on the price of ‘Theft and/or Theft’ and ‘Total Destruction’ insurance..
Negative interest rates are another factor driving insurance prices
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On the other hand, completely unrelated to the tax burden affecting the industry, it is necessary to inform the public about the related difficulties that insurance activities have experienced since the beginning of the year. This is a significant drop in investment rates, going from almost matching inflation to being significantly negative.. You don’t have to be an economist or a financial expert to understand this reality, as it is something that any individual or family suffers from due to the fixed terms or returns offered by apps like Mercado Pago or similar apps.
The financial consequences of this rate cut policy for the balance sheet as of June 30, 2024, are catastrophic. This has a significant impact on the insured. Insurance companies pay claims using funds generated from premiums collected (technical results) and interest generated from investments (financial results). If the financial results are negative, the technical results must also be negative and positive. Therefore, policyholders can expect that, instead of seeing their premiums decrease due to an almost unrelated drop in the price of certain vehicles, they can instead notice a significant increase in insurance prices.
It is important to understand that in order to meet the obligations of the insurance company in a timely manner, it is crucial that the system is solvent. For this, the premium (price) must be sufficient.
Nonetheless, the medium-term outlook remains very positive. At the end of the year, the PAIS tax on reinsurance payments will disappear And, if national governments’ economic policies are successful, interest rates will converge with inflation, all of which will have a positive impact on insurance prices. Tax costs will be reduced and investment profitability will increase, which will make it possible to win and attract more policyholders at lower prices.
Executive Director of the Argentine Insurance Companies Association (ADEAA).
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#PAIS #tax #cut #insurance #fall
Insurance inflation 2024
Decree No. 777/24: The Reality Behind the PAIS Rate Reduction and Its Impact on Insurance Prices
On September 2, Decree No. 777/24 was issued, reducing PAIS rates for imports of certain goods and services. This move has raised concerns in various sectors of the economy, particularly in the insurance industry. Many policyholders are wondering if this measure will lead to a reduction in insurance prices. Unfortunately, the answer is not what they want to hear.
The Limited Scope of the PAIS Rate Reduction
The decree only reduces rates for freight and transportation contracted abroad and for some goods procured in Mercosur. However, the reinsurance rate remains at 25% [1]. Specifically, for insurance activities, there will be no changes until at least December 28, 2024 (the tax settlement date mentioned above).
The Double Meaning of the PAIS Rate Reduction
The maintenance of the reinsurance rate at 25% has a double meaning. Firstly, additional reinsurance costs will continue to increase, which is an extremely important input for the insurance of economic activities such as agriculture, industry, construction, and public works. Secondly, the existing gap between the dollar value paid as reinsurance premium (price) and the dollar value charged in the event of an accident will persist [2]. This gap creates a mismatch that must be compensated by increasing insurance prices to maintain account balance.
The Limited Impact on Insurance Prices
One might argue that the reduction in zero-kilometre car prices should lead to a similarly proportional reduction in insurance prices. However, this is not the case. The reduction in vehicle value only affects two types of insurance, “theft and/or theft” and “total destruction”, but has no effect on civil liability insurance, which is the most important of the three [3]. The impact of reducing the PA
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The Impact of Decree No. 777/24 on Insurance Prices: A Closer Look
On September 2, 2024, Decree No. 777/24 was issued, reducing PAIS rates for imports of certain goods and services. The measure was intended to bring relief to various sectors of the economy, but its effects on insurance prices have left many wondering if the expected reductions will materialize. Unfortunately, the answer is not what policyholders want to hear.
Limited Scope of the Decree
The decree only reduces rates for freight and transportation contracted abroad and for some goods procured in Mercosur. However, the reinsurance rate remains at 25%. For insurance activities, there will be no changes until at least December 28, 2024 (the tax settlement date mentioned above). This has a double meaning: additional reinsurance costs will continue to increase, and the existing gap between the dollar value paid as reinsurance premium and the dollar value charged in the event of an accident will be maintained.
Auto Insurance Prices Unaffected
One might expect that the reduction in zero-kilometre car prices would lead to a similarly proportional reduction in insurance prices. Unfortunately, this is not the case. The reduction in vehicle value only affects “theft and/or theft” and “total destruction” insurance, but has no impact on civil liability insurance, which is the most important of the three. The final piece of coverage involves what’s known as “life value,” which is the price paid for injuries caused to third-party accident victims.
Multiple Insurances, Multiple Prices
When purchasing “auto insurance,” policyholders are buying multiple insurances included in one policy, with the price of each insurance calculated separately. The reduction in vehicle value due to the reduction in PAIS tax will have no impact on civil liability insurance. Specifically, the impact of reducing the PAIS tax rate on imports of certain vehicles or auto parts can only have a very minor impact on the price of “theft and/or theft” and “total destruction” insurance.
Negative Interest Rates: Another Factor Driving Insurance Prices
Negative interest rates are another factor driving insurance prices. With rates already low, insurers are facing decreasing returns on their investments, leading to increased costs for policyholders. This situation deserves your analysis.
the decree’s impact on insurance prices is limited, and policyholders should not expect significant reductions in their premiums. The maintenance of the reinsurance rate at 25% and the minimal effect of the PAIS tax reduction on auto insurance prices mean that insurance costs will likely remain steady. Additionally, negative interest rates will continue to drive insurance prices up. For policyholders, it is essential to understand the complexities of insurance pricing and the various factors that influence it.
Sources:
NAIC Property and Casualty Commercial Rate Manual
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