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Insurance Premium Tax – further increase announced in Autumn statement

We warned that it would happen. Below is our blog from November 2015 where we forecast further increases and this latest rise could be a sign of things to come.

BIBA slammed the latest increase as “outrageous” and it has been described by some as the fastest growing stealth tax.

The latest increase is on top of 3 previous since 2010 when IPT was just 5%.

Car drivers are likely to feel the worst of the tax hike. Next June’s increase will add around £10 a year to the average car insurance premium, according to the AA. Car insurance premiums have already been rising steadily up 16% to an average £586 – as insurers have sought to pass on higher claims costs.

  

INSURANCE COSTS!

There are a multitude of legislative, financial and social factors impacting vehicle Operators costs generally. Premium reductions in some cases or at least stability in charges are likely to be wiped out by poor loss ratios and increased levels of financial capacity needed by insurers. To cap it all the Chancellor in his last budget increased the level of Insurance Premium Tax (IPT) to 9.5%.

The IPT increase is in excess of 50% and it’s difficult to understand why there has been so little anger at this tax. Introduced in 1994 at a rate of 2.5% it has steadily increased over the years. This is the first increase since 2011 with the worry being that there is a Government agenda to bring the rate in line with insurance taxes in other European countries. That could take IPT heading towards 15% plus. What a great incentive for businesses to protect themselves properly.

Many argue that the most dangerous piece of machinery in the world is a box with wheels on it .In an environment where we can think about all sorts of safety features such as AEB, Forward Facing Cameras, Telematics , Safety cages , Park Lane/Assist  to name some , it is with some difficulty that we have to come to terms with rising losses in the commercial motor market. How can this be? It could be something to do with the fact that 90% of all accidents are down to driver error. Drivers are becoming increasingly distracted and some behaviours have become so deeply ingrained that no amount of threats or logic are stopping stupidity. Think just about the use of mobile phones whilst driving.

Some facts.

Department of Transport statistics . Figures for the year ending September 2014;

Motor traffic volumes rose by 2% compared to previous 12 months
1775 deaths on the road  – 4% increase compared to previous year
5% increase overall in seriously injured road casualties.

113 cyclists killed in 2014

It’s interesting that there appears to be a very close correlation between the price of fuel and increasing claims frequency. There is simply less margin for driver error on more crowed roads. So look no further than a couple of features to explain why premiums are rsing:

Claims Frequency – The biggest factor that will influence insurance costs is claims frequency and it is starting to rise again after a period of stability. A number of factors are driving this, falling fuel prices, a recovering economy and Ministry of Justice (MOJ) reforms/benefits starting to unravel as claimant solicitors/accident management companies reform on lower cost base models.

The UK motor insurance market will have to react to rising claims frequency. It really is just a question of timing.

Claims Inflation – the consultant EY in its June seminar on the UK Motor market estimates claims inflation to be 4.3% in 2015 increasing to 4.6% in 2016. The key concern would be bodily injury inflation at 7.7%. Injuries are becoming a larger percentage of claims bills despite challenges to the blossoming culture around claims and better ways of combatting fraud. Adding in the continuing affects of credit hire costs and you get the picture.

One final piece of information. Deloittes in its latest Annual Motor Insurance Seminar highlighted the lack of profitability in the entire commercial market . the net combined ratio of all insurers ( profit ) has failed to reach 100% ( break even ) in any of the last 10 years. It’s not easy making a profit as a commercial motor insurer. Buyers beware Think carefully about your choice of insurance broker.  A poorly managed insurance choice based on price alone can very quickly outweigh that short term saving.  Make sure your broker helps you to improve your risk profile and have in place risk management measures that puts you in as much control as you can in managing the cost of insurance.

Steve Green

Director

Anthony Jones (UK) Ltd

Nov 15

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