The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Family Guardian is bracing for $400,000 in extra costs that will be incurred during the 2015 second half as a result of Value-Added Tax’s (VAT) imposition on the insurance industry from July 1.

Lyrone Burrows, the BISX-listed insurer’s president, told Tribune Business that 60 per cent of its business would be “insulated” from the increased costs VAT will impose.

This is because health insurance, which now accounts for the majority of Family Guardian’s business, is treated as VAT-able, meaning the insurer will be able to recover all input costs paid in relation to this segment.

Mr Burrows, though, warned that Family Guardian and its competitors would instead “feel it” on the life insurance side of their business.

This is because life insurance, which the Government is treating is a long-term savings product, will be VAT ‘exempt’. While consumers will not see the 7.5 per cent tax imposed on their premiums, Family Guardian and its fellow insurers are unable to recover/offset the VAT paid on their inputs relating to this segment.

“At this point we’re estimating that the impact for 2015 will be about $400,000 in additional costs to the bottom line from the implementation of VAT,” Mr Burrows told Tribune Business, “which we’re not able to recover due to being exempt.

“There will be some challenges as a result of that, but we will see that dissipate in a full year, 2016.”

But, with BahamaHealth now accounting for the majority of its premium revenues, Mr Burrows said Family Guardian should be able to recover the majority of its VAT ‘input’ payments.

“At this point it appears that 60 per cent of our premium revenues are generated from our health business, which is VAT-able,” he told Tribune Business, “and which allows us to recoup [the input payments]. We’re fine on that end.

“It’s on the exempt end of the business where we will feel it. On BahamaHealth, we’re pretty much in good shape. Pretty much 60 per cent of the business is insulated from that process.”

Mr Burrows, though, conceded that his main concern with health insurance was whether consumers would elect to drop or reduce coverage levels due to premiums becoming more expensive.

This is because, as a VAT-able category, the new 7.5 per cent levy will be added on top of insurance premiums.

“The only issue on the health side is how much of a reduction in business is incurred by persons voting with their pocket books,” Mr Burrows confirmed.

The Family Guardian president also revealed that the insurer’s relationship with international medical services provider, Aetna, had enabled it to clear a “backlog” of local health-related claims and release “a significant amount” of policyholder reserves.

“We continue to see improvement around the health side,” Mr Burrows said. “The relationship with Aetna continues to drive down our international claims costs, and the separation of our operations and marketing arms with the domestic business has continued to provide a positive contribution to the bottom line.

“Over the past three years we’ve seen continued improvement, and it ties in with the time period we’ve been affiliated with Aetna. As a result of that we’ve been able to tie-in better reinsurance arrangements.

“And the fact they’re administering the international claims has taken some of the load off local claims personnel,” added Mr Burrows, “which has allowed us to clear claims that have been in pending status for a period of time.

“Our backlog of claims has been eliminated as a result of that, and we’ve been able to release a significant amount of health claims reserves.

Mr Burrows said he was unable to recall the dollar value of the claims reserve release.