A new government a new budget, for the first time in four years insurance has been addressed both good and bad!
The good was an announcement that the regulation of claims management firms will be subject to a major review. The bad, is that Insurance Premium Tax (IPT) will be increasing from 6% to 9.5% with effect from November this year. This significant increase of 3.5% is estimated to bring in an extra £1.6bn to the government’s coffers.
This is also the biggest increase imposed since the introduction of IPT back in 1994 at what seems now seems a modest rate at 2.5%. Both BIBA (British Insurance Brokers Association) and ABI (Association of British Insurers) have both voiced their disappointment at the increases. They pointed out that insurance will now become more expensive and labelled it a stealth tax on 20.1 million households and 19.6 million motor insurance policies. The point was also made that this is countering out savings insurers have made through more competitive pricing partly enabled by claims law processing reforms. There are also concerns that this could lead to a reduction in people buying insurance or opting for lesser covers, which could leave people either underinsured or even uninsured in event of claims. Also, potentially increasing the number of uninsured drivers and undoing the all the hard work in the recent drive in tackling this problem of illegal drivers.
The government justified the increases by pointing out that IPT is lower in the UK than in many other European countries, which also could lead to worries that further increases may follow in future budgets. They also suggested that insurance prices are also low at present which helps offset the increase. The other hidden cost is one that is met by insurers and brokers, who will not only have to re-program computer systems to calculate the new tax rate but also updating all forms, letters, terms of business, adverts and other relevant paperwork where this information is present. While we all like to update and tamper with the content of our paperwork from time to time, it often seems onerous when doing so for regulatory purposes!
Claims Management Companies as mentioned briefly the government is still concerned with many claims management companies and in particular the intrusive, opportunistic and sometimes deceitful methods some companies have gone to in an effort to drum up business. Cold calling from firms who ask (and sometimes suggest) you have suffered an accident or have bought Payment Protection Insurance without any evidence has become a nuisance of the modern age that plagues and irritates many private individuals and businesses on a regular basis is still on the agenda. Recently the Insurance Times reported that a woman from Newcastle has received a four month prison sentence suspended for one year following a fabricated injury following a genuine incident. The woman suggested that she was in her car when another vehicle collided with it but it was proved that was not the case. The woman claimed that she made the claim because she had been pestered into making the claim by a claims management company after receiving multiple calls and texts. Covea, the insurer of the driver that caused the claim made a statement highlighting that people should not be drawn in by the prospect of easy money by hard selling claims company’s and they will take action. It not only damages the insurance and legal process and industries but unfairly increases premiums for other policyholders.
The government has over the last couple of years also been looking at ways to try and discourage these incidents by preventing referral fees (where people or companies receive an income for referring claims) to introducing the claims portal to make claims faster and less expensive. I think for most people the jury is out as to whether better management of the rogue claims management companies and more prosecutions for fraud could reduce claims and therefore premiums and offset the increase in IPT. I’m not holding my breath.