In June we see the rate of Insurance Premium Tax (IPT) increase to 12% from the current rate of 10%. But remember, not so long ago it had gone up to 9.5% from a previous rate of 6% and that was only 18 months ago. A treasury spokesperson stated that this was a tax on insurers and should not be passed onto customers. After all insurers can afford it, or can they?
Last year saw the introduction of “Solvency 2” which required insurers to have larger solvency margins. This was designed to protect customers from insurers going bust and was triggered by the banking crisis. Whilst this greater customer protection is a good thing it comes with a cost. And then of course the recent reforms to the Ogden tables caught everyone by surprise. These tables determine how much an insurer will pay as a lump sum in personal injury claims. The Lord Chancellor changed the rate by only a few percent and UK insurers were impacted by £2.1 Billion overnight. Given this latest surprise many smaller insurers are in big trouble and absorbing the IPT rise is clearly not going to happen.
Let’s not forget however that in August last year we saw the implementation of the Insurance Act. This provides a fairer balance of power between insurer and customer. Again a great thing as it applies to block insurance and long overdue as it updated legislation that was over 100 years old. The act also had the impact of placing more responsibility on insurance brokers and managing agents.
Historically the biggest factor that affects insurance premiums is the behaviour of re-insurers. These are the global insurance giants that enable UK insurers to operate by offering insurance to cover their major losses. They are also significantly impacted by the reforms to the Ogden tables. As we approach a surprise election and the uncertainty of how the UK insurance market will operate post Brexit I suspect there is only one likely conclusion. Re-insurers will increase their rates and this will cascade into the UK market with potentially significant resultant price increases.
On the horizon we have the implementation of the Insurance Distribution Directive which comes into effect in February 2018. This updates the regulation of insurance by focusing on distribution and will impose a number of requirements on both insurance brokers and managing agents. Whilst the changes are still in consultation it appears that anyone handing insurance (including those in a managing agents) will have to not only be competent but also will have to demonstrate a minimum level of continuous professional development in insurance.
With all these changes it would be prudent to consider the inevitable financial impacts and reflect these in your service charge budgets this year.