With an election rearing its head and major political parties keen to win over voters, insurance premium tax could be due a cut

By Yiannis Kotoulas

At this point, it should be news to no-one that the public are generally fed up with the rising premiums they are paying for their insurance policies. 

Those within the insurance sector may be well armed with a slew of explanations and justifications, but – and I have experienced this myself when making them to friends and family – they fall on deaf ears in the face of significant price increases. 

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Acting editor Yiannis Kotoulas

Insurance is still often seen as a grudge purchase, especially in motor lines where a policy is compulsory, and this is probably somewhat inherent to the nature of the product, given the fact that only those who claim are presented with the tangible value of protection. 

Price increases over the last 18 months have not helped this feeling and while these may finally be beginning to slow, public consternation has transmuted into political pressure – as it so often does. 

In October last year, Insurance Times reported that the Labour Party’s shadow transport secretary Louise Haigh had committed a potential incoming Labour government to tackling rising motor insurance premiums and to “crack down on unfair car insurance fees hitting people hard”. 

And in June the same year, the Treasury Committee questioned insurance leaders on the issue of rising premiums. 

Workable solution

Of course, premiums have not risen on a whim. Insurers would love to drop premiums for customers, but many are already operating with underwriting losses and combined operating ratios (COR) over 100%. 

Indeed, Insurance DataLab analysis of motor insurers across the UK and Gibraltar revealed an average COR of 111.1% for 2022/23, up from 97.4% for the previous year.

However, the government could kill two birds with one stone by reducing premiums for customers at no cost to insurers – and Biba has made this suggestion in its recently released manifesto

A cut to insurance premium tax (IPT), which Biba has lobbied for over the last years, would immediately give insurers wiggle room to pass on cost savings of 12%, or 20% for travel insurance and some other lines. 

IPT is a tax on the price of an insurance product and functions as an indirect tax on consumers and businesses that is collected by insurers and paid to HMRC.

Insurers pass on the cost of the tax to consumers and a reduction would also allow them to pass on the saving, while also providing government – or the opposition party – an easy win with the public. 

Biba has called for the government to cut the headline rate of IPT from 12% to 10% and exempt strategic lines – such as cyber insurance and cover for multioccupancy residency buildings – to increase uptake. 

The broker body may well have smelled blood where IPT is concerned this year – and government may be only too happy to oblige. 

But, where reputation is concerned, insurers would have to be sure to pass any savings onto their customers – or face their wrath.

 

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