Be prepared for a considerable rise in insurance premiums

A toughening market and recent rises in insurance premium tax means that the cost of insurance will increase, so it’s time to shop around – Tarian is available to try and get you the most suitable premium.

For the last decade, low insurance premiums have become the norm. But there are signs that this is about to change with underwriters beginning to consider the effect of rising inflation.

The main worry is said to be the increasing cost of insurance premium tax. The IPT is a general tax on insurance premiums and they were introduced at a rate of 2.5% in 1994. The rate has steadily risen since then, but in the last 2 years we have seen it being increased by the government 3 time; it went from 6% to 9.5% in November 2015; it went up to 10% in October 2016; and in June 2017 it increased again to 12% and it probably will not stop there.

The director of policy and engagement at the Charity Finance Group, Andrew O’Brien has voiced his concerns that the IPT will increase even further up to 20% where it will be equal to VAT. The CFG introduced a No Charity IPT campaign last year to try and avoid this tax for charities.

According to the campaign, the cost of IPT for the third sector has doubled from £24 to £48 in just 3 years, and could increase up to £83 million if they were to raise the rate to 20%.

Despite the catastrophic effect this could have on charities’ funding, the Treasury hasn’t shown any sign of changing it for the third sector, but the campaign continues.

O’brien states that the CFG will work alongside the Association of British Insurers to evaluate the effect of the IPT on the third sector.

He argues that the assessment that the government carried out on the impact of the most recent rate increase did not take into account the third sector. Additionally, he said that charities are guardians of cultural, historical and community assets and regularly have several volunteers which often results in their insurance costs being inevitably high and therefore a tax cut for them would be fair.

Another factor that has caused a rise in insurance prices is the Ogden rate, which is a formula used for calculating lump sum payments for personal injury claims. The rate had remained at 2.5% since 2001 but in February last year it was reduced to -0.75% which means the lump sum that a person receives for a personal injury has increased and this has pushed premiums up. However, due to the complaints from the insurance industry the government announced in September last year that they were going to review the change and proposed a rate between 0% and 1%, but they are yet to give a timeframe of when the final decision will be made.

The technical line manager for social welfare at the insurance company Markel UK, Wendy Cotton, stated that charities that have large fleets of motors well be more than likely affected by the change in Ogden rate. According to Cotton, certain lump sum payments have risen from £200,000 to £1 million after the change in the Ogden rate.

An anonymous source told the Third Sector stated that the cost of motor insurance policies have risen by between 50 and 100%. The anonymous source also said that third sector organisations with several members of staff or volunteers and charities that participate in high-risk activities, such as running care homes, are expected to see a significant increase in their insurance premiums due to the change in Ogden rate. Charities are advised by Cotton to ensure that they are not over-insuring or under-insuring and to be wary and careful with regards to increasing their excesses payments in order to reduce premiums, since the extra amount they could be paying if they need to make a claim won’t necessarily result in the premium being reduced a significant amount.

According to the charity director and Ecclesiastical Insurance, David Briton, charitable organisations that work with the public sector are also likely to see their premiums increase. He told the Third Sector that they are working with the public “they are taking on more hands-on delivery of services, this changes their risk profiles and could affect their employers' and public liability insurance."

The CEO of Access Insurance, Simon Hickman recognises that the cost of motor insurance has increased and that charities with volunteers or staff involved in hazardous activities might have to increase their level of cover.

The head of market for charities and social organisations at Zurich, Gordon Wilmot told the Third Sector that different insurance companies are taking various approaches with some passing the costs on to their customers and some taking it upon themselves to cover the costs. But general inflation pressure is definitely rife and at some point, the costs are going to flow to the market.

All of these factors mean that it is vital for charities to shop around for their policies and concentrate on managing risk. Tarian are able to help, we have a variety of policies from numerous insurers available to find a suitable cover at a competitive price which means plenty of options for you to choose from.

Source: Third Sector; https://www.thirdsector.co.uk/insurance-focus-prepared-premium-hike/finance/article/1450099