Insurance Premium Tax Is a Budget No-Go Says BIBA
BIBA, its members and their customers believe that Insurance Premium Tax should be reduced and have made the case to the Chancellor in a recent budget submission.
In its submission to HM Treasury BIBA explained that the 10 percent increase in uninsured accidents identified by the
The impact of this increased tax is very real. BIBA has heard from Mr
Read BIBA's Budget submission here
British Insurance Brokers' Association-Budget submission -
The Negative Impact of recent Insurance premium tax Increases
Following the spring 2017 budget, the Financial Secretary to the
The Majority of Industry experts including BIBA and large brokers like the AA attribute this increase in uninsured driving directly to the doubling of IPT, from 6 percent to 12 percent in a 20 month period up to
Insurance - reduces the burden on the state
Insurance is a social good. It allows people to take responsibility for themselves and their assets, and reduces the burden on the state should things go wrong. Additionally, the transferring of risk through insurance allows business to function. It gives our country resilience and businesses the peace of mind that when the unexpected happens, they will be given the assistance they need to be able to continue trading. Without it, the economy would grind to a halt as very few businesses possess the ability to carry their own risk without the need for insurance. In summary, insurance is vital.
Certain classes of insurance such as motor and employers' liability are also compulsory. Whilst there are very good reasons for this, it means that these policyholders have to pay the tax.
Insurance Premium Tax was introduced by then Conservative Chancellor
Insurance Premium Tax (IPT) is a tax on general insurance premiums. There are two rates;
* Standard rate: 12 percent per cent (home, contents, motor, van, pet, business, health)
* Higher rate: 20 per cent (travel insurance, mechanical/electrical appliances insurance and some vehicle insurance).
The tax is paid on insurance premiums, which in turn are paid by customers, similar to the way VAT is charged on goods or services and that charge is passed on the purchasers of these.
Between 1997 and 2011, a period of 14 years, there were only two increases of Insurance Premium Tax, introducing a modest rise from 4 percent to 5 percent under Rt Hon
BIBA members feel strongly that this gross inflation of the rate of tax materially affects affordability and limits the ability of the industry to pass on savings made through joint initiatives between the industry and Government to tackle fraud.
In its consultation 'Reforming the soft tissue injury (whiplash) claims process'[i],
Telematics-graph1 (https://d10ou7l0uhgg4f.cloudfront.net/wp-content/uploads/2017/11/21085930/Telematics-graph1.docx)
Motor insurance
According to the
Insurance Premium Tax is a regressive tax, hitting hardest those who pay more for premiums. In particular, those on low incomes, those who live in high-risk areas and young drivers are some of the most adversely affected.
For young drivers in particular, the most recent increases in IPT have significantly pushed up premiums. For a
Helping Young Drivers - Insurance Premium Tax Relief for young drivers using telematics
Telematics policies can offer savings of up to 25 percent for responsible young drivers. Data provided by the 'black-box' technology builds a personalised risk profile based on an individual's actual driving. Ongoing monitoring of driving behaviours encourages better, safer road use.
Research from insurance provider Ingenie shows that telematics-based feedback can halve a driver's risk of crashing over their first policy year. In addition, BIBA member Marmalade, specialists in telematics insurance for young drivers, has seen exceptionally strong safety results. Studies show that 1 in 5 young drivers have an accident within the first 6 months of passing their test, yet with Marmalade that figure significantly improves to only 1 in 16, making their young drivers three times safer.
Research by the
The research showed that over a seven year period, the reduction in accidents resulting in killed/seriously injured road users would be 259 in year 7, presenting an economic saving of
BIBA believes this is a credible policy intervention the Government could make that would limit the impact of previous IPT increases on the group most acutely impacted by it, whilst at the same time making roads safer.
Click here to view table (https://www.biba.org.uk/?p=28418&preview=true)
It demonstrated that over a seven year period, not only would there be 1,036 fewer KSI accidents but also the cost benefit for
We feel there is significant merit in Government considering the policy in order to help deliver safer roads, enable young people to take to the roads and increase the revenue that is taken into the exchequer.
Telematics is becoming increasingly popular. Each year, BIBA conducts research into the number of telematics policies live in the
Growth in live telematics policies (751,000 live policies at end of 2016)
Telematics-graph (https://d10ou7l0uhgg4f.cloudfront.net/wp-content/uploads/2017/11/21085539/Telematics-graph.docx)
Flood risk areas
Those living in flood risk areas are also impacted heavily by these increases in Insurance Premium Tax. Often, these communities face difficult decisions as to whether they can afford flood insurance or to forgo cover. An increase in the cost of insurance further puts insurance out of the reach of many, especially those outside of the scope of Flood Re.
Flood Re is a transitional arrangement, lasting for a total of 25 years. It is crucial that when the market moves to a risk-reflective pricing model at the end of the scheme, that insurance is not out of reach for those that need it.
Further, the previous IPT increase from 9.5 percent to 10 percent was ring-fenced to pay for flood defence spend. Flood defence spending is vital to being able to deliver an affordable risk reflective market at the end of Flood Re, as well as to deliver an effective market for those currently outside of the scope of Flood Re.
BIBA recently launched a new commercial insurance scheme for businesses that will also include flood cover for many commercial premises and let properties located in areas at risk from flooding.
Worked with the market to develop an innovative product that will both help them meet the usual commercial insurance needs of their small and medium sized clients (SMEs) and provide flood cover for many businesses risks that are ineligible for Flood Re.
The commercial scheme backed by the A+ rated security of Lloyd's underwriting capacity, uses an advanced mapping facility developed by Landmark which pin-points exactly the location and features of an individual property. Having this degree of specific and detailed risk reflective information allows each individual business or property to have insurance that is based on its own specific risk. It also recognises where meaningful resilience or resistance measures have been installed to decrease the risk or size of loss that may occur.
The scheme also offers a high degree of customer choice giving the option to 'buy-back' any flood excess that is applied because of the business location meaning customers can choose the amount of risk they want to bear themselves.
Crucial to the success of this however is sustained investment in capital projects, as well as routine maintenance of culverts, highways and defences. BIBA seeks clarification of this spending commitment and that the IPT contribution to fund flood defences will continue to be ring-fenced for this purpose from the increase that took place in
Other jurisdictions
Another argument Government previously put forward for raising the rate of IPT is to bring us in-line with rates in
Research, conducted by London Economics shows that for both medium and large-sized insurance broking firms, the cost of regulation as a proportion of income in
Click here to view table (https://d10ou7l0uhgg4f.cloudfront.net/wp-content/uploads/2017/11/21085539/Telematics-graph.docx)
Case study on the effect of IPT
Click here to view table (https://d10ou7l0uhgg4f.cloudfront.net/wp-content/uploads/2017/11/21085539/Telematics-graph.docx)
Who else is affected?
IPT is paid by the majority of
20.4 million Home owners/renters with contents insurance
20.1 million Drivers with home insurance
3.2 million Home owners with mortgage protection
1.9 million People with private medical insurance
3.4 million Pet owners
Our members are reporting back that following the increase to 12 percent they are receiving requests to reduce and cancel cover and increase excess/ deductibles from both personal and commercial customers.
Summary of the issues
* BIBA believes that the recent increases are contrary to the stated HMRC policy objective IPT01300 as measured by incidents caused by uninsured driving, which have now increased by 10 percent
* There is now evidence that the recent doubling of Insurances Premium tax has led to a lower take up of motor insurance by young drivers.
* The
* New IPT income that was generated specifically by an increase of 0.5 percent to improve flood defences should focus on areas where accessing insurance is the most challenging.
* We have the most expensive financial regulatory system in the world but our regulator has no requirement to consider the international competitiveness of
Calls to action
* For Government to reduce the rate of Insurance premium tax (IPT) for young drivers using telematics policies to zero, acting as an incentive for greater take up of these policies which deliver significant improved road safety results and result in cheaper premiums.
* BIBA accept that part of the increase was to flood much needed flood defences, however the increase has gone too far and BIBA now call for a reduction in the standard rate of Insurance Premium tax to 10 percent
* For Government to commit to sustained flood defence spend and the finds from the
* For the
[ii] https://www.dropbox.com/sh/tavfplf855jwpt8/AAA0g5UdS7iHXAZGvV9M5Urza?dl=0
[iii] https://www.biba.org.uk/press-releases/biba-research-reveals-750000-live-telematics-based-policies/
[iv] https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/2016/KeyFacts/EUIPT.pdf
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