The Geneva Risk and Insurance Review

, Volume 44, Issue 1, pp 1–26 | Cite as

Optimal taxation in non-life insurance markets

  • Sebastian SchlütterEmail author
Original Article


Insurance markets all over the world are subject to taxes, which can be collected through various tax schemes. The most commonly used tax schemes in non-life insurance include taxes on the premium income as well as taxes on corporate profits. The mix of those taxes differs substantially across regions. In Europe, for instance, premium taxes are at much higher levels than those in the United States. This paper shows that the particular mix of taxes matters for insurance companies’ solvency levels and insurance premiums, even when the expected tax revenue is fixed. The analysis provides comparative statics that reveal which combination of premium taxation and corporate taxation maximizes welfare. Numerical examples suggest that relatively high premium tax rates are welfare optimal. In general, a low volatility of insurance claims, a strong reaction of insurance demand to insurer default risk, as well as substantial agency issues between shareholders and management make corporate taxation more favorable in comparison to premium taxation.


Taxation Insurance pricing Default risk Solvency 

JEL Classification

G22 G28 H20 


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Copyright information

© International Association for the Study of Insurance Economics 2018

Authors and Affiliations

  1. 1.School of BusinessMainz University of Applied SciencesMainzGermany

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