Softening the blow of Insurance Premium Tax rise
UK businesses are facing an increase in cost pressures after Insurance Premium Tax (IPT) jumped to 12% in June. Having doubled from 6% in October 2015, this is the third increase in just 18 months.
The biggest concern over the tax increase is that businesses may be tempted to cut back on their policies, which is likely to increase the risk of under-insurance, according to Phil Cowell, chartered insurance broker at IFM Select.
Businesses already struggling to keep on top of their finances might amend their insurance policy to avoid paying a higher premium. However, there are other options to counterbalance the increase that won’t compromise the cover.
The rise may be relatively small but ignoring the impact it could have on premiums would be a costly mistake.
Smaller businesses already facing increasingly fierce competition will find it tough to raise their own prices to cover the increase.
The 2% rise may be the final straw for some, who may as a result consider ditching insurance altogether, while others run the risk of being under-insured.
This could have catastrophic consequences, so it is important to consider all available options to try and cover the premium increase, without affecting the cover provided by their policy.
Some insurers rely on their clients being too busy to assess what’s on offer, so being loyal to one provider year after year may not be wise.
Businesses should challenge their provider before accepting the first renewal offer. Gathering alternative quotes each year may be time-consuming but it is a worthwhile activity as a more cost-effective policy might be available.
However, some insurers may refuse to provide a quote if they suspect they’re being used to beat down premiums.
The best insurance brokers will market their client’s business every few years to confirm the lowest possible premium is being achieved, while delivering the cover needed.
Generally, it is good practice to review cover annually. However, those paying high premiums could benefit from an insurer that will guarantee rates or offer discounts. Some will be willing to do this if a two- or three-year policy is agreed to, though further IPT increases will still apply.
Depending on your insurer, you could be eligible for a rebate when agreeing to renew – particularly if you are paying a significant premium each year, and your claims fall below an agreed level.
Rebates typically range between 5%-15% of your annual premium.
For businesses with a history of making small or no claims, accepting a larger policy excess could help secure a premium discount that covers the IPT increase.
Businesses often change and improve their processes over time, which might reduce the risks of claims being made. Promptly notifying insurers whenever changes are made will ensure the right level of cover is in place and may reduce the premium.
The same changes that can reduce risk may also make some additional cover obsolete; ie, premiums might include cover for large amounts of cash on the premises, when most transactions actually involve card payments.
Establish all policy inclusions with a broker to ensure the right cover is achieved, while only paying for what is strictly necessary.
The IPT increase cannot be avoided, but by taking action and assessing all available options, businesses could reduce their premiums by as much as the increase, or in some cases more.
Those businesses most likely to feel the full impact of the increase are those that do nothing which is senseless, considering the options available to them.