LIFE INSURANCE: THE FLAT TAX WILL CHANGE THE LANDSCAPE!
The legislator has ratified the creation of a flat tax on capital income, within the framework of the parliamentary debates on the Budget Bill (BB) 2018. This single flat tax, at a rate of 30 %, will be the biggest upheaval in the French life insurance market since the 1998 reform.
For Vermeg, the configuration of this new tax – application of the 30 % tax rate (fiscal charges and social charges included) if the total outstanding debt of the life insurance policy exceeds EUR 150,000 – will have consequences on the appeal of life insurance. With a reform applicable as of 27 September 2017, the impact is technological as well as commercial for insurance players. Their information system (IS) must quickly integrate a new set of tax rules, in order to continue to support insurers’ advisory power vis-à-vis their end customers.
A TURNING POINT FOR INNOVATION IN THE SECTOR
Insurers have a new card to play in terms of advice and commercial innovation with respect to investors. Those who are able to put more than EUR 150,000 (or EUR 300,000 per couple) into a life insurance policy will have to make a choice in favour of or against this investment according to their income, the structuring of their assets, etc.
Players, including banks, who are capable of offering a varied investment portfolio, will have a competitive advantage. Life insurance will remain a long-term product, which is useful for preparing estates and yielding a profit on capital. However, in the shorter term, hesitation will become a reality. All the more so since the most common real estate investment schemes (OPCI, SCPI, etc.) integrated in a life insurance policy will be included in the calculation of the basis of the future Wealth Tax on Real Estate (WTRE). The insurers and their stakeholders must complete the preparation of their new investment offers as soon as possible: a new approach to life insurance must be elaborated to inform, and even reassure, end customers who are keen to maintain their returns.
THE INFORMATION SYSTEM AS SUPPORT FOR ADVICE AND INNOVATION
The way these new investments will be linked will be supported among the most successful insurers by an IS that is as responsive as their advisory power. A second competitive advantage will be the ability of these players to implement new compartmentalisation modules for life insurance tax as quickly as possible, and at a minimum cost.
Integrated into the insurer’s IS, this software will enable the most complex calculations in the shortest amount of time in response to the new needs of life insurance policyholders. What’s the trade-off between life insurance and banking products? What’s the schedule for investment distributions to ensure a constant tax rate on all of my capital income? Should I redeem part of my investment before 31 December 2017?
Every investor expects answers to these problems and a possible offer of a personalised substitution. The ability of insurers to respond to this complexification of needs, the consequence of the provisions of the 2018 BB, depends on their technological agility. Therefore, players equipped with a flexible back office, which teams in charge of advice and/or product innovation will have appropriated, will be the first to overcome the hurdles of this reform.
NATHALIE HOTTIN
BUSINESS EXPERT