UK government’s plans to raise IPT creates backlash in insurance sector

The UK government’s recent  proposal to raise insurance premium tax (IPT) from 10 percent to 12 percent, as laid out in its Autumn Statement, has created a backlash within the insurance sector.

One of the main concerns is how these rises will affect the public’s access to insurance.

“Yet another increase in IPT is a hammer blow for the hard pressed. It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance," said Huw Evans, director general of the Association of British Insurers (ABI).

Keith Richards, managing director of the Chartered Insurance Institute added: “It is very disappointing that the government has for the third time in twelve months targeted insurance as a source of additional revenue for the Treasury without considering the unintended consequences this will have on the public’s access to insurance.

Nick Warner, partner of Moore Stephens, said: “This is a move sure to disappoint the insurance market, the Chancellor has announced yet another rise in the IPT rate, taking it from 6 percent to 12 percent (via 9.5 percent and 10 percent) in the space of two years.

“The Chancellor’s assertion that “IPT is a tax on insurers” is a bit like saying that VAT (value-added tax) is a tax on businesses, and that they will decide whether or not to pass it on to their customers or bear it themselves. Both are simply tax collectors for the Chancellor and insurers will be collecting an additional £2 billion by 2017/18.”

“From the introduction of IPT in 1994, most insurers have always shown separately the IPT rate so that the customer will see this part of the cost. Apart from suppressing demand for insurance, the transitional arrangements invariably create systems and accounting problems for insurers and brokers, thereby increasing the risks of inadvertent non-compliance.”

From a ratings agency point of view, Helena Kingsley-Tomkins, assistant vice president-analyst at Moody’s, said: “The rating agency believes this increase in the IPT, together with the FCA’s new rules on insurance policy renewal disclosures, being introduced in April 2017, will limit insurers’ ability to continue raising underlying risk-adjusted prices in home and motor, which could drive profit margin compression for UK general insurers in 2017.”

Furthermore, IPT is expected to partially offset the savings motorists were expected to save from recent whiplash reform proposal put forward by the UK government.

Brett Hill, managing director of The Health Insurance Group, suggested the tax increases could force people to opt out of private medical insurance, which in turn would increase demands on an already under pressure NHS.