Saturday, 25 June 2022

Insurance costs to rise as new tax increase comes into force

Insurance costs

LONDON: Millions of people are facing increased insurance bills as a tax hike takes effect from Thursday, according to warnings from the industry. Those who already pay more for their insurance face the heaviest burden, such as young drivers and those living in flood risk areas, the British Insurance Brokers’ Association (BIBA) said.

Concerns have been raised that, with household finances already being squeezed, more people may risk going without insurance cover if faced with pricier policies. The latest hike in the rate of insurance premium tax (IPT) – which takes it from 10% to 12% from June 1 –  means the rate of tax paid on most insurance policies has doubled in less than two years.

In 2015, the rate was 6%, before it increased to 9.5% in November that year. In October 2016, the rate was increased from 9.5% to 10%. The tax is payable on most general insurance policies including home, motor, pet, private medical insurance, and cash plans taken out by individuals, as well as commercial insurance taken out by businesses.

The BIBA said the increase will affect:

:: 20.4 million home owners/renters with contents insurance;

:: 20.1 million drivers with motor insurance;

:: 3.2 million home owners with mortgage protection;

:: 1.9 million people with private medical insurance;

:: 3.4 million pet owners.

The BIBA also warned that small businesses could face a considerable increase to their costs. Steve White, chief executive of the BIBA, said: “This rapid increase is unprecedented – between 1997 and 2015, a period of 18 years, there were only two rate rises, taking the rate from 4% to 6%.”

He called for a freeze on the tax to be imposed for the term of the next Parliament. Recent research by the BIBA found 90% of insurance brokers anticipated that a further rise in the IPT will mean clients reduce their insurance protection or go without cover.

According to calculations from the Association of British Insurers (ABI), the latest IPT increase could add an extra £47 to the average household’s annual general insurance bill. It said that, overall, the new rate of IPT at 12% could now be adding an extra £283 a year to a typical household’s annual insurance bill.

The ABI estimates that a typical 19-year-old driver could see their annual motor premium increase by £20 following this latest rise. Younger drivers tend to pay higher premiums due to the higher likelihood of their age group being involved in accidents. However, telematics or “black box insurance”, which involves a small monitoring device being installed in the car, enables insurers to reward good driving with cheaper premiums.

Kevin Pratt, consumer affairs expert said: “Telematics offers a cheaper alternative to traditional policies if the driver can demonstrate he or she is a lower-risk proposition than the statistics for their demographic suggest. “Black boxes also make the roads safer by incentivising good driving habits.”

The latest IPT increase comes after figures reveal that inflation hit its highest level in nearly four years – 2.7% – in April. A Treasury spokesman said: “Insurance premium tax is a tax on insurers, not consumers – insurance firms decide whether to pass it on to their customers or not. “IPT is higher in several European countries, including France and Germany, than it is in the UK.”

Check Also

Cryptocurrencies tumble amid China crackdown

REUTERS/Dado Ruvic/Illustration/File Photo TOKYO – Cryptocurrencies tumbled on Monday as China’s crackdown on bitcoin mining ...

Leave a Reply