Fed: Uncertainty over GST s effect on insurance premiums ICA

AAP General News (Australia)
12-09-1999
Fed: Uncertainty over GST s effect on insurance premiums ICA

MELBOURNE, Dec 9 AAP - Insurers said today a range of factors would determine how much
policyholders paid for their insurance after the introduction of the GST next year.

Insurance Council of Australia (ICA) deputy chief executive Phillip Maguire said factors
affecting whether customers paid or less - or more - for their policies would include
the type of policy and which company was providing the insurance.

Another influence on premium levels was whether goods that would be subject to the
GST had also been subject to the wholesale sales tax.

"We keep on saying that prices are adjusted to reflect the net effect of the new tax
system," Mr Maguire said.

"So those adjustments can be minor; they can be more significant. They can be up; they
can be down."

The premium for a home insurance policy, for example, might increase because building
materials were not generally subject to the wholesale sales tax, which would be abolished
with introduction of the GST.

The materials were therefore expected to increase in cost when the GST came into force
and in turn would increase the cost of repairing or rebuilding a house.

But the premium for contents insurance could fall, since the value of some goods in
a policyholder's house could be reduced by the abolition of the wholesale sales tax.

Car insurance would be affected by the cost of repairs, specifically parts and labour.

Spare parts would no longer be subject to wholesale sales tax but would attract the
GST. Labour had never been subject to wholesale sales tax but would attract the GST.

Mr Maguire said premiums would also reflect changes in the cost of claims and in the
expenses incurred by insurance companies.

But he said the main consumer conundrum at present was why policyholders were already
paying a GST on their insurance, prior to the introduction of the new tax.

He said the answer was that policies now being issued may include cover for a period
after the July 1 start-up date of the GST.

Consumers were paying a pro rata amount of GST for the period during which their policy
extended beyond July 1.

AAP tsc/jlw/sub/br

KEYWORD: TAX INSURANCE

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