The jury is out on tax breaks for the insurance industry: Global lessons for Jamaica

Elective politics has never been one of my career options. My proximity to it began when a friend persuaded me to donate some of my monthly salary to his political party via a bank order. After a while, I cancelled the mandate. Invitations to party conferences and fundraising events stopped. My friend became a full-time politician, an MP, party bigwig, and headed several government ministries. Perhaps because my contributions were small and had a short lifespan, I was never asked to sit on any government entity's board. My goal at that time was to focus on my insurance career. Years later, when the Insurance Association of Jamaica announced that it was planning to push for tax breaks to lift islandwide coverage, I felt a strong urge to enter the debate and help shape the opinions of a few people, including politicians.

Another friend and colleague, consulting actuary Mrs Constance Hall, wrote on the subject before I could. An actuary is an independent adviser who uses mathematical, statistical, and financial theory to solve complex problems involving uncertainty, working with firms, governments, and insurance companies. Readers should interpret my comments in the context of Ms Hall's remarks and the facts that I present.

A July 2025 article stated that “from boardrooms to parliamentary benches, insurance industry stakeholders are sharpening their focus on how strategic legislation can transform financial inclusion, especially for underserved populations living outside the formal banking and employment systems. They argued that small, structured contributions — if properly incentivised — can lay the foundation for large-scale social protection”.

The source seemed credible and triggered my response. I wrote that incentives should be part of a broader effort of public engagement under the big umbrella of climate change, lack of trust, affordability, and other issues. Non-insurance and under-insurance weaken economic recovery efforts, as we are now finding out. Also, the UN's International Court of Justice said that the hazards posed by climate change are urgent and existential to countries like Jamaica that are at the greatest risk of harm. These impacts affect mortality and morbidity risks and create underwriting, pricing, and other challenges for life and health insurers.

The industry's argument for tax breaks intensified after Hurricane Melissa. One executive said at the IAJ's 2026 conference that low insurance penetration remains one of the country's biggest unresolved financial risks. “In terms of insurance penetration, we are doing very poorly. It is going to be very, very difficult to increase insurance penetration if we do not incentivise long-term savings. IAJ is now preparing a plan to discuss with the government and the regulators about how we can deepen insurance penetration, because insurance penetration is required to enable persons to become more resilient and to enable consumers to be in a better position.”

It was most surprising that in a panel discussion on ‘Lessons from Hurricane Melissa: What a National Shock Revealed About Insurance Resilience’, which involved insurers, climate change was never mentioned. One group of scientists stated after Melissa that it set several records over its lifecycle. It was the most intense hurricane to make landfall in Jamaica since record-keeping began and was tied for the most intense hurricane landfall globally since record-keeping began — by minimum central pressure (along with the 1935 Labour Day hurricane) and by maximum wind speed (with the 1935 Labour Day hurricane and 2019 Hurricane Dorian in The Bahamas). The conference occurred 40 days before the start of the 2025 hurricane season.

Shocks induced by climate change and other events were also a prominent concern when the International Monetary Fund's managing director spoke with a Gleaner reporter after its Spring Meetings. Jamaica, she said, should work to move the economy to a climate-sensitive place and build resilience to these shocks in how infrastructure is constructed, fiscal buffers, and insurance products.

Ms Hall's approach to the complex problems Hurricane Melissa highlighted was pointedly different from that of the IAJ. “Stop telling them about tax deductions because they don't pay any tax on a $2-million salary. A $2-million salary is tax-free. You cannot ask somebody, or you can't tell somebody that you're paying $2 million to, that they should find a way out of that amount to pay rent for the houses that you are building, to pay for the insurance on the house. They cannot afford it.”

Corporate Jamaica, she said, has steadily moved away from treating retirement as part of the job. “There was a time when employers considered the provision of a pension to an employee who had worked with them for three years to be their responsibility. They have stopped doing that. Now we have some stupid commercials that tell people they need to save for their retirement. That's how we're tackling the retirement crisis. We have one single, solitary way out of this. We have got to get back to employers acknowledging that retirement is their business, is their responsibility.”

Missing from this eight-month debate was any reference to what other countries have tried. Research shows that the use of tax relief — such as premium tax credits, deductions, or exemptions from value-added taxes (GCT) — is a common policy lever used to address the protection gap, which is the difference between total economic losses and insured losses. While this approach is theoretically sound, its effectiveness in practice is often nuanced and depends heavily on the market and type of insurance.

Is tax relief effective?

The logic behind tax relief is to lower the barrier to entry for policyholders. Here is why it can make a meaningful difference:

Reduction in price elasticity: Insurance is often viewed as a purchase consumers make reluctantly, seeing little immediate benefit. With a tax deduction or credit, the net cost to the consumer drops. For price-sensitive segments, this can make the difference between opting in or remaining uninsured.

Signalling effect: Government-backed tax incentives signal to consumers that certain types of coverage — like health or catastrophe insurance — are essential for social and financial stability.

Supply-side incentives: Tax breaks for insurers — such as lower corporate taxes for firms operating in underserved regions — can encourage them to develop products for risks that were previously uninsurable due to high administrative costs.

Global examples

The impact of tax incentives has been studied across various insurance segments with mixed but generally positive results for penetration:

Agriculture and parametric insurance: In many developing economies, governments subsidise insurance premiums rather than providing tax relief directly to farmers. In India, for example, the Pradhan Mantri Fasal Bima Yojana uses massive premium subsidies. While not a tax break in the traditional sense, this intervention has led to a spike in coverage. It also highlighted the fact that subsidies alone do not close the protection gap if claims processing is slow.

Health insurance: The Medicare Levy Surcharge and the Private Health Insurance Rebate in Australia are classic examples. High-income earners face a tax penalty if they do not have private insurance, while others receive a rebate on their premiums. This dual incentive-penalty approach significantly boosted private health penetration, relieving pressure on the public system. The tax-exempt status of employer-sponsored health insurance in the United States is the main driver of that country's private insurance market. Without it, the penetration gap would be wider.

Catastrophe and property insurance: In France, the CatNat System involves a mandatory surcharge on property policies, backed by a state guarantee. While not a relief mechanism, its success shows that fiscal integration into the insurance model creates near-100 per cent penetration for natural disasters.

Challenges and limitations

Evidence also suggests that tax relief is not a complete solution.

Regressivity: Tax deductions often benefit the wealthy — who pay more in taxes and can already afford insurance — more than the low-income population, who may not pay enough tax to benefit from a deduction.

The crowding-out effect: If the tax relief is too generous, it can lead to inefficient market behaviour or discourage the development of purely commercial, innovative risk-transfer solutions.

Institutional trust: In regions where trust in financial institutions is low, even a zero per cent tax rate or a heavy subsidy may fail to increase penetration if the consumer does not believe the insurer will pay the claim.

Tax relief is most effective when it is targeted and combined with compulsory elements or financial literacy campaigns. On its own, it reduces the price, but it does not necessarily solve the underlying issues of accessibility, product design, or lack of trust among communities that have long viewed insurance as a product for the wealthy. The insurance regulator, insurance companies, and intermediaries, with few exceptions, have done very little over the past five decades to address the trust deficit — a problem that even the much-maligned Jamaica Constabulary Force has deemed worthy of attention. There is no silver bullet.

If you require assistance managing risks or solving insurance problems, Cedric E. Stephens offers free counsel and advice. To obtain information and counsel, please write to The Business Editor at business@gleanerjm.com or contact Mr Stephens directly at aegisja@gmail.com. Letters and e-mails will be edited for clarity and length.

April 27, 2026 

(Caption: Road damage caused by Hurricane Melissa in October 2025.)