Insurance Premium Tax (IPT) increases

On 1st June 2017, Insurance Premium Tax (IPT), a tax on general insurance premiums, will increase from 10% to 12%. The increase to the IPT will apply to all policies established or renewed on, or after, 1st June 2017, in line with the following:

  • New policies and renewals starting on, or after, 1st June 2017 will be subject to the new 12% IPT rate. Any midterm adjustments (MTAs) that generate extra premiums for these policies will also be charged 12%.
  • Policies that began before 1st June 2017 will be subject to the old 10% IPT rate. Any MTAs that generate extra premiums for those policies will also be charged 10%. (Where an MTA is managed via electronic trading it may result in the new 12% rate coming into force for that specific policy. This is decided by each individual insurer).
  • By the 1st June 2018, all new and extra premiums will be subject to the new 12% IPT[1].

IPT increases leading to insurance decreases?

The IPT increase, further contributing to the overall cost of insurance, has caused experts to raise concerns about clients opting to underinsure or forgo cover altogether. Already it has been identified:

  • 28% of SMEs say that they would go out of business if faced with an unexpected bill of £50,000. Yet only 42% are insured against their top three risks[2].
  • 1% of micro-enterprises (0 to 9 employees) do not hold commercial insurance.[3]

If you fail to take out the appropriate level of insurance cover for your business, you are underinsured. If you suffer a claim you will be insufficiently covered, and any payout will fall short of your expected settlement amount.

The Insurance Act 2015 helps to clarify what information you need to disclose when taking out and renewing business insurance. The Act aims to make insurance fairer for policyholders. But, to benefit, you will need to be completely open and honest about the risks facing your business. Otherwise, your ability to make a successful claim, the amount you can recover from insurers, and even whether you have valid cover, will be at risk.

Our top tips for managing your insurance premiums without reducing cover

  • Use a specialist – Brokers who have expertise in a particular sector may be able to offer increased levels of cover at no additional charge.
  • Make sure your broker is doing their job – Check whether they are conducting regular market reviews to secure the best cover and rates possible for your specific insurance requirements.
  • Be aware of what cover you need – Risks change and new threats appear. So it is worth reviewing exactly what you are covered for. After all, the worst time to discover a gap in cover is when you need to claim.
  • Make sure it’s like-for-like – Always compare any alternative quotes with your existing policy to check the figures are like-for-like and the cover and exclusions in the policy are no worse than you currently enjoy. You don’t want to switch to cheaper cover only to find yourself in a worse position than you might otherwise have been when a claim occurs.
  • Take a proactive approach to risk – By proactively taking steps to reduce the number of accidents, not only are you protecting your employees, you are also protecting your business against claims. This ultimately impacts your insurance premium. Conducting risk management audits and improvement programmes can help remove/reduce your risk exposures. Taking these steps results in reduced business disruption; a safer work place, and puts your business in a better defensive position against future claims.

While the IPT increase is unavoidable, it is worth reviewing how you can manage your overall insurance expenditure without reducing your cover. For help and advice, why not get in touch?

[1] Zywave Newsbrief 2017

[2] https://www.rsagroup.com/news/press-releases/2016/future-impacts-report-by-rsa-shows-two-thirds-of-uk-smes-dont-see-brexit-as-threat/

[3] http://www.insurancebusinessmag.com/uk/news/sme/report-reveals-one-in-three-uk-micro-enterprises-uninsured-40582.aspx