Home insurers stand to lose 16% business with potential tax hike
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Companies providing home contents insurance are likely to lose 16% of customers next year if the price increases by 10%, according to UK insurers, who have urged the chancellor not to raise the rate of insurance premium tax further.
Ahead of Jeremy Hunt’s Autumn Statement on 17 November, the Association of British Insurers argued that as people are already struggling with the rising cost of living, a hike in IPT could lead to people cutting back on insurance cover.
According to a survey of more than 2,000 adults conducted by polling agency Public First and commissioned by the ABI, 16% said they were unsure about renewing or were likely to cancel their home contents insurance if the price is increased by 10%.
Public First estimated this would mean about 900,000 households are likely to cancel their home contents insurance.
ABI director general Hannah Gurga said: “With many families and businesses facing tough financial decisions, the last thing they need is a rise in insurance premium tax. Any increase in the rate of IPT at this time would likely impact those who continue to be most vulnerable to the cost-of-living crisis and we urge the government to keep the rate frozen.”
Most people likely to give up mobile insurance
Household contents insurance is the product most likely to be affected with a 10% rise in premiums. The survey found 5% of people are unsure about renewing or likely to cancel. And this figure would go up by 11 points to 16% with a 10% price increase.
However, across different insurance products, mobile cover is likely to have the highest number of hesitant or non-repeat customers. According to the survey, 26% of people are in this category simply because of the rising cost of living, but the figure would go up by 2 points to 28% if they had to pay 10% extra for mobile phone insurance.
What is IPT?
IPT is a type of tax levied on general insurance premiums. It is charged according to two rates: a standard rate of 12% applies to, among other things, car, home and pet insurance, while a higher rate of 20% applies to travel, electrical appliance and rental vehicle insurance.
Scott Corfe, a director in the data and modelling team at Public First, said increases to the standard rate of IPT since 2010 means the government has received more than £4.2bn. Over this time period, the standard rate of IPT increased from 5% to 12%, with the rate increasing in 2011, 2015, 2016 and 2017, he said.
He said IPT is now the third largest revenue raiser of UK taxes, after capital gains tax and stamp duty.
Corfe argued one reason IPT has been used to “plug holes in the public finances” over the past decade is a relatively low public awareness of the levy, as the survey found over half of respondents were not aware of the tax, “making it an ideal stealth money-raiser for a government looking to balance the books”.
He added: “Despite IPT feeding its way into higher insurance premiums, lack of awareness of the tax means government can get away with pointing the finger elsewhere.”
The report also revealed people are already cutting back on insurance amid the cost-of-living crisis, with nearly a fifth (18%) of respondents saying they know someone who has cancelled their insurance because of concerns about wider costs.
In September, the Financial Conduct Authority told insurance bosses that customers have to consider “difficult trade-offs” and may reduce insurance expenditure.
Can insurers afford to lower their profit margins so that customers are not put off by another IPT hike?
