Tomorrows increase in insurance premium tax (IPT) from 10% to 12% could add an extra £47 to the average UK annual household bill, according to the Association of British Insurers (ABI).
31 MAY 2017 | CHRIS SEEKINGS
This is expected to affect hard-pressed families most, with the tax payable on most general insurance policies including home, motor, pet, private medical, cash plans, and commercial.
It is just eight months since the tax increased to 10%, and has doubled since November 2015, with the latest hike expected to provide the government with £5.8bn a year from IPT.
"With a doubling of IPT in just under two years, it is time to call a halt to this raid on the responsible," ABI director of general insurance policy, James Dalton, said.
"This tax 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. This latest hike must be the last."
The ABI says that the rise comes at the worst possible time as average premiums increase due to changes to the discount rate, rising repair bills, and a resurgence in whiplash-style claims.
Their analysis shows that insurance customers that pay higher premiums will be the worst hit, with a typical 19-year-old driver predicted to see a £20 increase, while those with private medical insurance could see a £39 rise.
A breakdown of how the IPT will result in higher premiums (£) is shown below:
"Generally across Europe, default IPT rates are mirroring standard VAT rates, and as such, if the UK follows suit, we would anticipate further increases in the future, ultimately driving up insurance costs," FiscalReps CEO, Mike Stalley, said.
Pricing pressures from various different sources, has led LexisNexis Risk Solutions UK and Ireland managing director, Keith Binley, to urge insurers to embrace telematics in order to drive down premiums.
"Aside from the uncertainties around Brexit, and a snap election, the discount rate dropped, whiplash reforms were shelved for the second time, and from Thursday the new rate of IPT will be implemented," he said.
"Fundamentally, insurers and brokers have the power to take back some control by gaining a clearer view of risk at all stages of the insurance process, leveraging data to make the right decisions for their customers and their businesses.
"This is going to be key for insurers to maintain their current minimal margins in spite of the increase, and for consumers to not have to take a tax increase as a premium hike."
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