The unexpected announcement in UK Chancellor George Osborn’s budget, which would raise the Insurance Premium Tax (IPT) from 6 percent to 9.5 percent starting in November, poses a problem for UK-based insurers.
David Coupe, a partner in EC3\Legal, said: “The insurance industry’s response to the 3.5 percent increase in the rate of IPT has been clear – costs will increase for the consumer. But will the IPT increase really end up in consumers’ laps, or has the tipping point been reached for the insurance industry?”
Coupe pointed out that with the “soft market and low rates seeming to be a permanent feature, it is a brave insurer that risks losing business by increasing premiums. It seems more likely that the already squeezed insurers, brokers and underwriters are more likely to grin and bear the increased cost themselves.”
He also notes, however, that “an exit from the affected markets becomes more likely too, which will lead to less competition and more potential consumer detriment due to reduced competition.”
In conclusion Coupe said: “The IPT increase is another squeeze on the industry along with low premiums, generally higher solvency requirements and increased regulation. As a result, it has the potential to lead to cost cutting and redundancies. Many could look to exit to avoid this consequence, with more distressed sales occurring. Good for those in M&A – not so good for those who are the targets.”
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