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HST to cost insurers a one-time hit of Cdn$250 million: IBC president


October 28, 2009   by Canadian Underwriter


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The implementation of the Harmonized Sales Tax (HST) will result in a one-time hit of $250 million for the insurance industry at the end of 2009, Don Forgeron, president and CEO of Insurance Bureau of Canada, told delegates of the Property Casualty Underwriters Club luncheon in Toronto.
Ontario and British Columbia each have HSTs coming into effect on July 1, 2010. The HST will increase the cost of goods and services in these provinces by 8% and 7% respectively, he said. “While this is good news for the economy as a whole, it’s not such good news for insurers.”
Forgeron outlined two reasons why the implementation of the HST will have a negative impact on the insurance industry.
The first is that, going forward from July 1, 2010, the cost of running businesses and settling claims will increase.
Although the government has hinted at the possibility of a corresponding offset with a reduction in commercial income taxes, “the government here in Ontario has a $24-billion deficit,” Forgeron said. “There’s not likely there’s a lot of wiggle room for them to provide relief to our sector over and above other sectors.”
The second problem is unique to the insurance industry, he continued. “Because of the unique nature of our business, the tax has a retroactive impact, despite the fact that it’s not a retroactive tax.”
As of July 1, 2010, all of the claims that are outstanding will see their costs go up.
“Actuaries, being the responsible souls that they are, know this and they have to book their reserve changes at the end of this year,” he said.
“That’s going to cost our industry $250 million on a one-time hit basis at the end of this year. And this comes at the end of a year in which the financial results are going to be absolutely dismal. And it’s hard to believe that the consumers won’t ultimately pay the cost of this.”
Forgeron added he believes it’s an unintended consequence of the HST implementation. He said IBC is working with the government to have it provide some form of short-term relief so that “we can get through this hump.”


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