Insurers to pass on costs of tax rises

THE rising cost of car insurance is set to accelerate as a result of measures included in the emergency Budget on Tuesday, insurers have warned.

The lower rate of insurance premium tax (IPT), which affects general insurance, including car and home insurance, will rise from 5 to 6 per cent next January. The higher rate, affecting travel insurance, will rise in line with VAT from 17.5 to 20 per cent on the same date.

Premiums are likely to rise accordingly as insurers pass the extra costs on to consumers.

The AA last week warned the Treasury that a sharp rise in IPT would cause a jump in the number of uninsured drivers, and while the eventual increase was not to the extent feared it said the rise would still reduce the number of people taking up car and home insurance.

Annual car insurance premiums have risen by more than a quarter over the past year, and home insurance premiums have risen over the same period after a number of serious floods.

Simon Douglas, director of AA Insurance, said: "Car insurance premiums especially are rising very quickly as insurers struggle to replenish reserves depleted by underwriting losses.

"I believe we will see premium increases of up to 20 per cent this year, for the second year running."

Travel insurers also hit out at a rise in IPT that would mean those buying travel insurance paying 14 per cent more than for other insurances.

Perry Wilson, founder of travel insurer InsureandGo, said: "Our research suggests the UK travel insurance industry receives over half a million claims for medical problems a year and nearly 400,000 for lost or stolen baggage.This tax rise will only act as a deterrent to those who sensibly want to insure themselves against these risks."