The effects of the Insurance Premium Tax Increase on Insurance Brokers

Image of book keeping In November this year the Insurance Premium Tax (IPT) will be raised from 6 percent to 9.5 per cent which is a considerable change. This increase will affect anything from contents insurance to motorhome insurance and includes all of the insurances that Victor Millwell offer. The increase is thought to make around £1.75 billion a year which will go straight into the Treasury’s pockets.

The increase was justified by Mr Osbourne by saying that the cost of premiums had fallen for families and in Britain who currently pay a lot less than those in other countries including Germany where they pay 19 percent IPT. Naturally, there are some that work in the industry are not pleased with the change, with the chief executive of BIBA, Steve White, saying: “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.”

Businesses as well as customers will be affected by the increase, with customers already being advised that when it comes to their insurance renewal they shouldn’t automatically cancel because their premiums have gone up, as every other insurance company will be doing the same. The Indirect Tax Partner at Deloitte, Daniel Lyons, said: “This is unlikely to be a popular measure, but it is the first really significant increase in the standard rate of IPT since it was introduced in 1996.”

The insurance industry do not yet know whether this increase will lead to customers thinking that cover is just too expensive. “While it’s still a reasonably low rate compared to other countries, it could be enough for a customer to reduce their cover, or opt for no cover at all,” said the global head of IPT at KPMG, Adrian Smith.

Mr Osbourne also wants to clampdown on company’s cold calling customers as well as place a cap on the fees that they can charge. Claims Director at Aviva, Rob Townend, said: “The Chancellor’s pledge to scrutinise the regulation of claims management companies and, in particular, the proposal to cap fees they can charge, is long overdue.”

Motorhome brokers may have issues retaining customers because of the IPT increase as customers could think that the overall price of their policies has increased. You could therefore try and protect your business by reassuring all customers about this change and double-check they know that all other policies will see the same increase.

It is natural for your customers to think that because they are paying more money they should receive more value for money so we suggest that you remind them what their policy includes and shout about its benefits. This will make them feel that their policy is worth paying for and once again, will gain their trust. Find yourself the best policies that offer the most extensive benefits such as: unlimited mileage, 365 day a year protection, contents protection etc.

If you are concerned as a broker it may also be a good idea to have a conversation with your policy provider and ask them what measures they are putting into place to protect their business.

Overall, insurance is going to cost more for everyone which means customers may try switching providers when it is time for them to renew, however a new motorhome insurance policy could potentially not save them any money. We suggest that brokers use this as an opportunity to retain customers and their increase lifetime value, along with reassuring them and building their trust. Boast to your customers about what your policy offers and be proud of it!

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