Move could lead to more consolidation in the sector
Soft market conditions and low premium rates mean brokers and underwriters will have to absorb the rise in insurance premium rates themselves, which could lead to more consolidation in the sector, according to law firm EC£Legal.
In last week’s budget speech, Chancellor of the Exchequer George Osborne announced the basic rate of IPT will rise to 9.5% in November, from its current rate of 6%.
”The insurance industry’s response to the 3.5% increase in the rate of IPT has been clear – costs will increase for the consumer. But will the IPT increase really end up in consumers’ laps or has the tipping point been reached for the insurance industry?” asked EC3\Legal partner David Coupe.
“With the soft market and low rates seeming to be a permanent feature, it is a brave insurer that risks losing business by increasing premiums,” he said.
”It seems more likely that the already squeezed insurers, brokers and underwriters are more likely to grin and bear the increased cost themselves. But an exit from the affected markets becomes more likely too, which will lead to less competition and more potential consumer detriment due to reduced competition.
“The IPT increase is another squeeze on the industry along with low premiums, generally higher solvency requirements and increased regulation. As a result, it has the potential to lead to cost cutting and redundancies. Many could look to exit to avoid this consequence, with more distressed sales occurring. Good for those in M&A – not so good for those who are the targets.”