The Insurance Bureau of Canada (IBC) and the Canadian Life and Health Insurance Association (CLHIA) endorse a recent report by the C.D. Howe Institute that calls for an end to provincial taxes on insurance premiums.

In a report entitled Piling On – How Provincial Taxation of Insurance Premiums Costs Consumers, the C.D. Howe Institute urges provincial governments to eliminate taxes on insurance premiums. The report states that Canadian consumers are often unaware that their province levies a tax on their life, health and property and casualty insurance premiums that may range from 2% to 5%. 

Contacted by The Insurance and Investment Journal, the two leading industry lobbyists backed the report. 

The Insurance Bureau of Canada (IBC) mentions that the study by the C.D. Howe Institute is one of the rare detailed analyses of taxation of insurance premiums. “It clearly demonstrates the disproportionate tax burden on property and casualty insurance relative to other financial products, a fact largely unknown to the public”, Pierre Babinsky, director of communications and public affairs with IBC points out.

The tax on premiums and temporary surtaxes are included in the premium, and this premium is then subject to the 9% sales tax on all insurance products, he adds. “The IBC is concerned about this heavy tax burden that may lead some consumers to reduce their insurance coverage, which might have dramatic financial consequences in case of a loss,” Babinsky says.

The study makes good arguments for a reform that improves tax equity, a priority of the IBC, Babinsky continues. “Each year, the IBC asks the government to ease the finance tax burden of P&C insurers, by reminding them that it is the consumer who ends up absorbing these extra charges,” he says.

Hidden costs: an anomaly

The CLHIA also thinks that the C.D. Howe Institute report can definitely turn the tide. “It shines a light on the hidden cost to consumers of the taxation of insurance premiums,” Suzie Pellerin, Assistant Vice-President, Public Affairs and Government Relations at the CLHIA told The Insurance and Investment Journal.

Pellerin adds that this research shows the imbalance caused by taxes charged on insurance products, unlike other investment products, and the inconsistencies with regimes in other countries.

The Association hopes that C.D. Howe’s conclusions will motivate governments to reduce and ultimately eliminate taxes on insurance premiums.