In the frame of our first report about the French insurance market, published in the beginning of 2008, we warned that the French government deficit and debt levels could represent a threat for the country’s economy. This was well before the financial crisis hit the European continent and its impacts on public spending.
Now the problem has worsened, and even though France is still not directly fingered—as is the case for Portugal, Spain, and Italy following the Greek and Irish governments’ debt crises—the situation remains alarming.
We recently asked French insurance CIOs to tell us their feeling about their industry’s near future and, more importantly, whether they felt some macroeconomic factors were impacting their business and growth prospect in the mid to long-term. Some of them mentioned that the French government was in serious need for more financial resources, and would try sooner or later to tap savings accumulated by the French population.
It is well known in France that the government is currently analyzing different alternatives to change the current tax system. It was publicly announced last week that the tax shield (law stipulating that no taxpayer pays more than half their income in taxes) implemented by Nicolas Sarkozy after his election as president will be abolished.
Taking into consideration the current public debt of the country, a reform of the tax system is a priority that everybody should understand. Among the different alternatives currently evaluated by the government, there is the willingness to increase taxes wealth accumulated through life insurance products and retirement savings.
Our CIOs were right, and the decision to tap savings accumulated by French citizens is going to impact the French life insurance industry in the coming years…
This blog has been reprinted with permission from Celent.
Nicolas Michellod is a senior analyst in Celent's insurance practice, and can be reached at nmichellod@celent.com.
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