The financial burden on insurance buyers has grown significantly with the rate of IPT reaching a record high, according to Biba
Biba has called for the rate of insurance premium tax (IPT) to be frozen for the remainder of this Parliament’s term to help guard against the risk of underinsurance in the current economic climate.
The request came as part of Biba’s latest 2023 manifesto entitled Managing Risk – Delivering Stability, which was launched in the Houses of Parliament yesterday (24 January 2023).
Biba’s manifesto from 2022 also called for the same in terms of IPT rate freezes.
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 the worry is that a heightened rate would make insurance policies less attractive to consumers during the ongoing cost of living crisis.
The broker trade body believes that the rate of IPT is too high and that the financial burden on insurance buyers has grown significantly.
Receipts from the tax have increased significantly in recent years – more than doubling in the last seven years from £3bn in 2015 to record high of £6.627bn now, at a standard rate of 12%.
Graeme Trudgill, executive director at Biba told Insurance Times that this year total HMRC revenue from IPT was at a “record amount”.
Revenues for IPT in the financial year 2021 to 2022 were £320m higher than the previous financial year – and this trend looks set to continue for this financial year to date.
April to June revenues from IPT from the current financial year have already reached £1,766m – £165m (10.3%) higher than for the same period in the previous financial year.
Biba’s research reveals that 32% of customers are already removing add-on covers from their motor insurance. In addition to this, 38% of customers are removing optional covers like accidental damage and personal possessions from their home insurance.
Meanwhile, 32% of customers were found to have stopped buying group personal accident and business travel cover.
Back in 1994, the standard rate for IPT was 2.5% and total receipts sat at just £117m.
Biba’s manifesto suggested an IPT exclusion for cyber insurance, which historically has a low uptake among SMEs. The exclusion was also suggested for cladded buildings that require remediation, as premiums for cover in this sector are very high.
Trudgill added: “We recognise, being realistic in the [current] environment, it’s going to be difficult to get a major tax cut like that. So, the main request is for a freeze in IPT.”
The most recent budget saw IPT remain the same, but for Biba “the pressure remains”, according to Trudgill.
Biba launches 2023 manifesto with focus on risk management and stability
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Manifesto 2023: IPT rate should be frozen