Millions of people are set to see their insurance bills increase from Thursday as a tax hike takes effect, according to warnings from the industry.
Those who already pay more for their insurance face the costliest increases, such as young drivers and those living in flood risk areas, the British Insurance Brokers’ Association (BIBA) has said.
From June 1, the rate of insurance premium tax (IPT) will increase from 10% to 12%.
The BIBA said it was concerned that with the cost of living already rising, more people may risk going without insurance if faced with pricier policies.
Thursday’s IPT increase means the rate of tax paid on most insurance policies has doubled in less than two years.
In 2015, the rate was 6%, before it increased to 9.5% in November that year. In October 2016, the rate was increased from 9.5% to 10%.
IPT is payable on most general insurance policies including home, motor, pet, private medical insurance, and cash plans taken out by individuals, as well as commercial insurance taken out by businesses.
The BIBA said the tax rise will affect:
The BIBA also warned that small businesses could face a considerable increase to their costs.
Steve White, chief executive of the BIBA, said: “This rapid increase is unprecedented – between 1997 and 2015, a period of 18 years, there were only two rate rises, taking the rate from 4% to 6%.”
He called for a freeze on the tax to be imposed for the term of the next Parliament.
According to calculations from the Association of British Insurers (ABI), the latest IPT increase could add an extra £283 a year to a typical household’s annual insurance bill.
They also calculated that a typical 19-year-old’s car insurance could increase by £20.
A spokesperson for the Treasury said bills would likely increase because insurance firms were passing on costs to their customers: “Insurance premium tax is a tax on insurers, not consumers – insurance firms decide whether to pass it on to their customers or not.
“IPT is higher in several European countries, including France and Germany, than it is in the UK.”