Convert sectoral flat-rate premiums into an insurance premium?

In the context of joint industrial negotiations, fixed premiums are regularly awarded by the sector which the employer can usually convert to an equivalent alternative benefit. In this agreement, the sector may be offering the opportunity to pay this amount as a premium to finance group insurance. This could be a new policy or the extension of an existing contract. But is it interesting?

For tax purposes, the conversion to an insurance premium is certainly advantageous. In the case of a payment in cash, the joint industrial premium will be distributed as wages and subject to employer and personal social security charges plus withholding tax. The gross premium of several hundred euro is quickly reduced to a net amount to the employee's bank account of approximately one-third. On the other hand, the taxes and charges on insurance premiums are much lower, making the comparable net amount much more financially advantageous.

Insurers are all too happy to capitalise on this and recently have introduced "ready-made" packages with equivalent benefits on the market. These concern supplementary allowances relating to medical expenses and/or dental care. Since 80% of the working population in Belgium already enjoys hospitalisation insurance through their employer, and since dental care is becoming increasingly popular, this is an extra-legal benefit that could appeal to many employees.

Specifically AXA, DKV and AG Insurance are marketing formulas to make use of the flat-rate premium to finance a new package of fringe benefits inspired by the 2015-2016 sectoral agreement within joint industrial committee PC200. The salaried employees sector includes as many as 400,000 potential insured, represented in approximately 54,000 companies. The premium amounts to 250 euro (or 252.83 euro indexed in 2017) increased by a 35% employer contribution, or approximately 337 euro which is awarded annually and for which the decision concerning the form of this benefit is also confirmed annually.

These gross premiums translate into a net insurance premium increased by only a 9.25% insurance tax. Depending on the size and composition of the insured group, there are already policies available with an annual employer cost of 120 euro per insured. The insured amounts with their exemptions, exclusions and benefit ceilings vary widely from insurer to insurer. A market study is certainly recommended based on the available budget and the needs of the employees concerned.

Of course, the sectoral premium can also simply be used as an (extra) employer contribution to a retirement plan. This still results in the greatest net benefit. The 4.4% insurance tax and the 8.86% social contribution on the pension premium does result in an extra charge of 13.26% on the premium, but a group pension premium is fully tax deductible for the employer. The premium for a group healthcare policy cannot be deducted as a business expense.

It still requires additional analysis to find the most advantageous insurance solution for both employers and employees based on the interests of the employees in question. When converting a sectoral premium into an insurance premium, you also need to take into account the specific insurance aspects. In the case of pension schemes, we are thinking here in particular of the harmonisation of the status of blue and white collar employees and the minimum employer guarantees. In the case of medical insurance, we emphasise the importance of the loss statistics and ability to terminate the policies annually. Due to these, the initial conversion costs of the sectoral premium could increase in the future due to additional profitability requirements or an unfavourable evolution in the loss statistics.