Insurance companies have warned that a recent rise in tax could mean that the average family will end up paying £283 more for their premiums every year. The Insurance Premium Tax (IPT) has now increased from 10% to 12%, meaning that the cost of home, motor, health and pet insurance is set to go up. IPT has proven to be an attractive way for chancellors to raise funds in recent years, with the rise to 12% meaning that the tax has doubled within just 19 months.
Whilst the tax increase means that the average motor insurance policy will go up by £8, those who are already paying above the average – such as younger drivers, who are seen as a higher risk to insure – will be hit the hardest. A 19-year-old driver, for example, may see their annual insurance bill increase by around £20. Others likely to see the greatest increases in their insurance premiums are those living in poorer areas or in flood zones. The rise in IPT will also have an impact on small businesses which take out commercial insurance, as they could see their premiums go up considerably.
The Treasury has defended the increase by calling it “a tax on insurers, not consumers – insurance firms decide whether to pass it on to their customers or not” and stating that other European countries such as France and Germany still have higher rates of IPT than the UK. However, the Association of British Insurers (ABI) has condemned the rise. James Dalton, the ABI director of general insurance policy, has described the tax increase as a “raid on the responsible”, stating that it “penalises hard working families, as well as businesses, who have done the right thing by taking out insurance to protect against many of life’s uncertainties”.
The British Insurance Brokers’ Association (BIBA) has estimated that the tax rise will affect 20.4 million people with contents insurance on a home they rent or own, 3.2 million homeowners who hold mortgage protection, 20.1 million road users holding motor insurance, 3.4 million pet owners and 1.9 million holders of private medical insurance. BIBA has also expressed concern that more expensive policies will result in people reducing their cover to a level not suitable for their circumstances or, worse, opting not to have cover at all.