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What did Budget 2020 bring for the insurance industry?

What did Budget 2020 bring for the insurance industry? | Insurance Business

What did Budget 2020 bring for the insurance industry?

The 2020 budget has finally been delivered – but it has likely brought disappointment to many across the insurance sector where there had been calls for the new Chancellor, Rishi Sunak, to reform insurance premium tax (IPT) and to clarify access to the ‘European Health Insurance Card’ (EHIC).

Recently the CII, the ABI and many other organisations had asked that IPT be reformed. The CII noted that while IPT might have once been seen as a necessary component of HM Treasury’s tax strategy, it has risen unreasonably over time since being introduced in 2015, from 2.5% to 12%, increasing the true cost of insurance and hitting working people the hardest.

“This stealth tax on responsible and vulnerable customers should be cut,” said Keith Richards, MD of engagement at the CII. “We are asking the government to consider the benefits for consumers of reducing the cost of premiums by cutting this tax, and the knock-on positive effect this will have across the country in making insurance more affordable for people to protect against the risks in life which may otherwise be catastrophic.”

Fast forward to the lack of a cut for IPT today, and Richards said it was “understandable” that the Chancellor had chosen to focus on issues surrounding the coronavirus this time around – but hoped for more come the Autumn Budget.

“We hope the government will review ways to improve access to financial advice and guidance for all. I hope the review of insurance premium tax, that was announced in the Budget, will result in this levy being axed as it has increased the cost of cover for consumers,” he said.

Meanwhile, the British Insurance Brokers’ Association (BIBA) had said that, in light of research from Zurich, which found that nine out of 10 in the public and voluntary sectors felt that any increase in IPT would negatively impact them financially, it was demanding that the rate of IPT remain frozen for the duration of this Parliament. 

“We welcome new Chancellor, Rishi Sunak’s approach to Insurance Premium Tax (IPT),” said BIBA CEO Steve White in his reaction today. “Not changing the current rate - already at a significant 12 pence in the pound of every premium paid will help businesses and consumers to afford the insurance protection they need. We will, however, bear in mind that the Chancellor has not explicitly frozen the rate and we will continue to campaign for Government to freeze, if not reduce, the rate of IPT for the remainder of this Parliament.

“We will also continue to highlight to the highest levels of Government the dire consequences of a tax that potentially reduces access to insurance. In our 2020 Manifesto – Access, BIBA highlighted research by Zurich that shows a correlation between steady increases in IPT and a decline in the uptake of insurance. Because of this, as well as freezing the rate we believe targeted tax relief on both cyber insurance and telematics-based motor insurance would alleviate this trend.”

In a silver lining to the lack of a reduction to IPT, the government has pledged to double its investment in flood defences over the next six years to £5.2 billion, protecting over 300,000 properties and to make £120 million immediately available to repair damage caused by recent floods.

Responding to this, Simon Welton, market head P&C, UK & Ireland, at Swiss Re, said: “The extra investment in the country’s flood defences will be a much needed boost to homes and businesses impacted by the recent storms, the damage from which is still clear to see in many parts of the UK.

“However, it will still take time for this money to translate into actual schemes to protect or alleviate the risk of flood. This investment should be part of a concerted and coordinated effort by the government, insurers and the wider business community to build more resilience into our infrastructure and help mitigate the growing danger of climate change on our lives.”