The decision to raise VAT by 5% is a heavy blow for insurers,whose costs will soar, in the context where they are just VATpayers, unable to recover the tax as their tariffs do not includeit. Unlike the insurance industry, other industries have anoffsetting possibility: firms cash in VAT for sales and pay VAT forvarious acquisitions, and depending on the difference between thetwo sums they either have some VAT to recoup from the state, or topay. Insurers say their profits will be hammered on the risingcosts and their sales will suffer, as clients' purchasing powerwill decline. At any rate, the insurance market has been strugglingwith losses in recent years, which reached 25m euros in 2009.Companies are in the red despite constantly rising tariffs for carinsurance, their main line of business, each year. In 2009, generalinsurers settled total claims worth 5.18bn RON (1.22bn euros), andthe level will be similar, perhaps slightly lower, in 2010. RaisingVAT from 19% to 24% would push up claims expenses by around 100mRON (25m euros) starting July, when the hike comes into effect,until yearend.
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