IPT rise: Airmic urges businesses not to reduce insurance cover

Airmic has expressed its disappointment with the size and timing of the increase in Insurance Premium Tax (IPT) announced by the Chancellor in the 2015 Summer Budget.George Osborne announced last month a rise in IPT from 6% to 9.5%, effective from November this year.

Julia Graham, technical director of Airmic, said:

“While this wasn't totally unexpected given an upward trend in similar taxes globally, we are disappointed by the magnitude of the rise: an increase of over 50 percent, raising in excess of a billion pounds in additional tax revenues.  

“Insurance is critical for businesses, and yesterday’s announcement is an added challenge for UK business and the insurance industry in an already tough environment. The timing is particularly difficult given that many companies will have already set their budgets for the next renewal season.”

Julia added that with businesses already under pressure to reduce costs, Airmic would urge them to resist the temptation to reduce their insurance cover and limits in the face of potential price hikes. “Having an effective insurance programme is an important underpinning of any business strategy and cutting corners is a false economy,” she said.

The tax rise comes just weeks after Airmic issued a report urging businesses to put claims efficacy before price when buying insurance. The report Business Critical Insurance, written with PwC, argued that certain insurance cover is critical to the financial well-being of a business, and that the challenge for insurance buyers is to raise awareness of the value of insurance beyond that of a commodity. 

Julia said the tax increase poses a further challenge: “While Airmic is urging businesses to focus on the strategic importance of insurance, the IPT hike is putting the focus back on price.”

Other associations have also expressed their concerns. The Association of British Insurers, the ABI, described it as “very disappointing”. Meanwhile, the British Insurance Broker’s Association, BIBA, urged a review of the policy: “The Government has been working with the industry to reduce the cost of insurance for consumers – including a summit chaired by the Prime Minister. It therefore seems counterintuitive to be taking measures which will add to the cost – effectively taxing protection. We hope the Government will review this rise and correct it in further budgets.”

Julia Graham: “Cutting corners is a false economy”