A tax is typically adding nearly £100 to the annual cost paid by consumers for motor and combined buildings and contents home insurance policies, according to an industry body.
The Association of British Insurers (ABI) released the figures as it urged Chancellor Jeremy Hunt to reduce the rate of insurance premium tax (IPT) in next week’s autumn statement.
It argued that doing this would help millions of households and businesses manage their rising insurance costs.
Insurers are doing all they can to offer competitively priced insurance, despite facing some substantial increases in costs outside of their control— Mervyn Skeet, ABI
IPT is a tax levied on insurers, but in practice it is passed on to customers as it feeds into the amounts charged for policies.
For motor and home insurance alone, IPT typically equates to an added cost approaching £98 per year, the ABI said, made up of £60 for motor insurance and just over £37 for a combined home buildings and contents policy.
It added that IPT equates to around £46.50 being added to a pet insurance policy and £13.50 to an annual travel insurance policy, typically.
IPT applies to most general insurance policies including motor, home, pet, and private medical insurance. The standard rate has doubled to 12% since October 2015.
The ABI said it is likely to hit the poorest the hardest who spend proportionately more on insurance, such as home and motor cover.
The costs of some insurance policies have been surging amid jumps in costs for raw materials, labour and energy. Rising second-hand car prices and the increasing sophistication of cars have also been factors pushing up insurance prices.
The ABI calculated that a single person with a car (paying motor insurance) who is renting a flat (paying contents cover) and paying travel insurance could be paying around £87 in IPT.
For a couple with two cars (paying two motor insurance policies), their own home (paying combined building and contents cover), a pet (paying pet insurance) and both with travel cover (two travel policies) could be paying around £231 annually in IPT.
If one person in the couple also has private medical cover, not supplied through work, they could be paying around £500 annually in IPT, the ABI said.
Last year, the tax made £7.45 billion for the Government, the association added.
Mervyn Skeet, the ABI’s director of general insurance policy, said: “Insurers are doing all they can to offer competitively priced insurance, despite facing some substantial increases in costs outside of their control.
“Now has never been a better time for the Government to show its support to the millions of homeowners and businesses who do the right thing by protecting their families and livelihoods against sudden financial shocks, than to reduce insurance premium tax.”
A Treasury spokesperson said: “Insurance premium tax, which contributes over £7 billion towards vital public services, forms just one part of the overall cost of insurance and the extent to which it is passed on to customers is a decision for insurers.
“Other factors affecting the price of insurance include the level of competition in the market.”
