UK businesses are preparing for another jump in insurance premium tax (IPT), which will hit 12% in June, the third increase in just 18 months.
While the increase will no doubt put further pressure on UK businesses, it also brings with it an increased risk of under-insurance as businesses look to keep their insurance costs under control. Phil Cowell, chartered insurance broker and director of IFM Select, explains:
‘Businesses already struggling to make a profit might be tempted to buy less comprehensive cover or reduce sums insured, in the hope of reducing their premium to cover the recent IPT increases.
‘More businesses could accept one-size-fits-all policies that may include inappropriate conditions, in the hope they never have to call on the policy and discover the cover does not meet their expectations when it’s needed most.
‘There are ways a business can mitigate the increase in insurance costs, whilst still providing the cover it needs. A tailored policy can be arranged on a very cost effective basis, but requires time for a broker to understand the business in question and shape the policy to fit.’
The tax has been described by the industry as the UK’s ‘fastest growing stealth tax’.
Announcing the 2% increase, the chancellor, Philip Hammond, said IPT rates in the UK remained some of the lowest in Europe and that money was needed to pay for the government’s infrastructure plans. But the Association of British Insurers (ABI) described the increase as a ‘hammer blow for the hard-pressed’.
The IPT was introduced in 1994 at 2.5%, since then it has been steadily increased by successive chancellors. IPT has been hiked three times in the past 18 months: the rate was just 5% in 2010.
From 1 June 2017, most buyers of insurance policies will see the higher 12% rate added to their premium.