ABI director believes that reducing insurance premium tax could ’immediately help’ the affordability of motor premiums
Despite the cost pressures facing the motor insurance market in the UK, there is also a wealth of opportunity for insurers, according to Mervyn Skeet, director of general insurance policy at the ABI.
Speaking during his keynote address at the InsurConnect Gibraltar conference on 25 January 2024, Skeet told delegates: “Cost pressures [in the UK motor insurance market] stem from the increasing cost of labour, energy and parts and are often significantly above the headline inflation rate.”
Data from Confused.com and Willis Towers Watson, published on 16 January 2024, confirmed Skeet’s assessment. This revealed that motor insurance premiums have surged by 58% in the last 12 months - UK motorists now pay on average £995 a year for their car insurance.
Skeet continued: “What’s interesting is we’re under significant scrutiny from government regulators, the media and the public on the affordability of motor insurance.
”Many people think this is one of the most difficult times [in the] insurance industry, but I would say it’s also one of most exciting times, particularly in the motor industry, because there’s a lot of change.”
Skeet explained that industry-wide changes could lead to new opportunities, helping the market to “stay competitive”.
This includes, for example, the Automated Vehicles Bill 2023. Published in November 2023, this aims to improve the safety of autonomous technology and provide clarification of legal liability.
Other developments that could present market opportunities include ”the way young people buy motor insurance” and ”how vehicle ownership might move forward”.
Skeet noted that ”vehicle subscription services, car sharing, car hubs [and] new types of vehicle categories, like micromobility, are all going to change the current model” of motor insurance.
Reducing premiums
Despite the potential opportunities within the motor market, Skeet added that ”the FCA has indicated [that it is] not happy with certain elements of the motor insurance market”.
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He listed guaranteed asset protection (Gap) insurance, premium valuations and the operation of Consumer Duty as some of the regulator’s current main focuses.
Skeet added that the UK government could also reduce Insurance Premium Tax (IPT), which could “immediately help” premium affordability in the motor insurance market.
The government collected £2.1bn in IPT during quarter three of the current financial year, according to HMRC tax receipts evaluated by actuarial consultancy OAC in January 2024.
IPT is a tax on general insurance premiums, including car insurance, home insurance and pet insurance. A higher 20% rate of IPT applies to travel insurance, electrical appliance insurance and some vehicle insurance.
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