One of the most unwelcome aspects of yesterday's Autumn Statement was the rise in Insurance Premium Tax (IPT) – when it comes into effect, it'll be the third time it's risen in little more than 18 months – and unfortunately, it means insurance premiums are set to rise even further.
We've already seen the rate of IPT rise twice in the last year, first in November 2015, and again less than two months ago. As a result, the rate has risen from 6% last year to 10% today, and in June, it'll rise to 12% - meaning that the rate will have doubled in less than two years.
The Chancellor says that it's a necessary evil, with the hike being in order to raise revenue to fund his other spending commitments. He also points out that our rate of IPT is lower than in many other European countries, and that it's half the rate of VAT, but those platitudes will come as little consolation to those already battling with rising car and home insurance premiums.
Understandably, this has been met with criticism from the industry, with Huw Evans, director general of the Association of British Insurers, saying that it's "a hammer blow for the hard pressed". It will "hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance," he said, adding that the confirmation of the Government's commitment to pushing through whiplash reforms, something designed to offset the IPT hike and lower car insurance premiums, "just won't cut it".
Others agree. Paul Green, director of communications at Saga, said that "increasing insurance premium tax for a third consecutive time is incredibly frustrating for people who are trying to do the right thing and protect themselves and their belongings. This may prevent some people from buying the insurance they need".
The British Insurance Brokers Association (BIBA) points out that policyholders have already seen an increase of 66% in the rate of IPT they pay, and that this further hike is "outrageous". It's "a tax on protection which will hit everyone, and especially those 'just about managing'", it said, referring to the Government's previously stated commitment to focus on JAMs. "This increase comes at a time when both motor and home insurance premiums are rising, and our fear is that many of those who most need it will avoid taking up insurance and be unable to afford the protection they need."
According to Consumer Intelligence, the latest IPT rise could add an estimated £15 a year to the average motor insurance premium of £788, which has already increased by 13.5% in a year. Younger drivers are set to suffer the most, with average premiums for under-25s rising by £35 on their current £1,831 premium. Meanwhile, homeowners can expect to see prices rise by around £2.50 a year on average, from the current £123 for the typical home insurance premium.
"In one fell swoop the Chancellor has removed much of the supposed financial benefit to drivers from the whiplash compensation reforms announced last week," said Ian Hughes, chief executive of Consumer Intelligence. "Young drivers will effectively see any reductions they had been looking forward to wiped out. Once again every homeowner and driver will have to pay more to protect what matters most to them."
It isn't just car and home insurance, either. The ABI estimates that the typical pet insurance quote will rise by £19.82 as a direct result of the three recent IPT increases, while private medical insurance is set to rise by a whopping £83.24 – and those paying for it on a personal basis, rather than through a corporate scheme, could end up paying £129.37 more every single year.
This is particularly concerning for the industry, said Romana Abdin, chief executive of Simplyhealth, and it could have knock-on effects for the NHS, too: "By continuously increasing IPT, the Government will ultimately push people back onto the NHS for health services. Health insurance products need to be exempt from IPT – if not we are constantly putting more strain on the NHS, which in an increasingly ageing society, is already under immense pressure."
There's a growing fear that these repeated IPT hikes could lead to many people underinsuring in an attempt to keep their policies as low as possible – and some may be tempted to forego insurance altogether.
"We already have a situation in this country where around a quarter of people do not have home contents insurance and almost half don't have any life cover," commented Simon Stanney, General Insurance director of SunLife. "And when it comes to car insurance, many drivers, particularly young people, are really struggling to afford premiums as it is. These rises, though they may seem minimal, could result in many people underinsuring, or worse, not insuring at all, leaving them completely unprotected."
This should never be an option. For starters, car insurance is a legal requirement so you should never even think of foregoing it, and you should ideally be placing the same kind of importance on other forms of insurance, too. Your finances could be at stake should the worst happen, so don't run the risk of not giving yourself enough protection.
But that doesn't mean you want to spend a fortune, particularly now that price hikes are on the cards again. The key is to make sure you're getting the right level of cover at a price you can afford, so use our insurance comparison tool to get started, and hopefully, the IPT rise won't impact you too much.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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