By NEIL HARTNELL
Tribune Business Editor
The government is planning to consolidate the Domestic and External Insurance Acts into one in a move that mirrors the banking industry's compliance with European Union (EU) demands.
Tim Ingraham, Summit Insurance Company's president, told Tribune Business that the industry had been informed by its regulator, the Insurance Commission, that the legislative overhaul was targeted for completion by year-end.
He revealed that the reforms contemplate replacing the existing three percent tax levied on insurance premiums with a systemic risk levy, replicating recent changes unveiled for the Bahamian bank and trust company industry, where fees are to be based on the systemic risk individual institutions pose and the amount of regulation they require.
Mr Ingraham said the Bahamian insurance industry's regulatory transformation appeared to be motivated by "exactly the same thing" occurring with the banking sector to ensure The Bahamas meets its pledge to the EU to eliminate so-called "ring fencing".
The Summit chief added that this nation could not be seen to have two separate regimes for its domestic and external (captive) insurance sectors, as this would result in "ring fencing" or the provision of preferential tax breaks for foreign investors and non-resident entities that were not available to operators in the local sector.
"The Insurance Commission has indicated that the Domestic and External Insurance Acts will be repealed and replaced with one Act dealing with both sectors under one umbrella," Mr Ingraham told Tribune Business.
"They've indicated they hope to have it done by the end of this year, and there was something to change the insurance premium tax. They were to restructure the insurance premium tax in favour of a systemic risk levy that depends on where you have a presence, in the local market or elsewhere, or what type of business you do."
This mirrors the recently-announced reforms in the Bahamian banking industry, which eliminate the "walls" between the domestic and international sectors, and switch the regulatory fees from ones based on assets and revenues to levies based on the risk each individual poses. The fees will also go directly to the industry's regulator, the Central Bank, rather than the Government.
This was all designed to bring the Bahamian bank and trust company sector into compliance with the EU's anti-tax evasion drive, with The Bahamas having until year-end 2019 to demonstrate it is implementing the commitments that ensured it avoided the 28-nation bloc's 2018 "blacklisting".
"It is exactly the same thing," Mr Ingraham added of the insurance industry's proposed regulatory shake-up. "It stems from the same changes. It all began some time late last year, and continued into this year.
"They've indicated the tax should remain at 3 percent; they've not indicated they're going to increase that. That's the key thing. With the 'ring fencing' they can't be seen to have two regimes; one for locals, one for external insurance, and this is part of that. It's all kind of connected to a number of things."
Mr Ingraham added that the Bahamian property and casualty industry was also concerned about the Know Your Customer (KYC) rules finalised by the Insurance Commission, which could result in extra bureaucracy and administrative costs as a result of increased client scrutiny.
The rules are intended to ensure the insurance sector complies with the Financial Transactions Reporting Act and Proceeds of Crime Act passed last year, but Mr Ingraham suggested they were unnecessary for property and casualty insurers as their products cannot be easily exploited by money launderers and other financial criminals.
"Regulation is another concern at the moment and where we're going with that," Mr Ingraham told Tribune Business. "We're in discussions with the Insurance Commission at the moment. They've released some new rules companies are looking to comply with relating to money laundering reporting requirements and the Proceeds of Crime Act.
"Some of it is coming off the Act, and some of it is the Insurance Commission deciding to step up and make companies step up surveillance for money laundering and those things. It's having to set up regimes similar to banks and life insurance companies, but the property and casualty industry is seen as less risky because the products don't lend themselves well to money laundering.
"On the back end there's investigation to ensure there's no fraud and money laundering; that it's clean. It's not as easy to use property and casualty products for money laundering and fraud and things they're concerned about. This is one of those things where everybody gets caught up in the rush," he added.
"We do not have to do the same thing as banks and life insurance companies are doing, but we may have to implement a KYC regime going forward. There'll be an increased level of surveillance so you might find insurers have to ask for a lot more information from customers."
Mr Ingraham said the KYC changes needed to be fully discussed and analysed by the insurance industry to avoid any adverse consequences, adding that it could be problematic for first-time vehicle buyers to produce the required identification documents such as a utility bill.
"These are some of the challenges, and we have to find the best way forward," he said.