Insurance does not often make a big splash in Autumn Statements but the ripple effects of two particular changes announced by the chancellor are likely to be felt by insurance consumers across the spectrum.
Changes made to the insurance premium tax (IPT) and to the taxation of certain employee benefits may well make it more expensive for the end consumer - and therefore make the adviser's job in selling protection much harder.
IPT hike
IPT has been raised for the third time in approximately 18 months, giving insurers and protection advisers little breathing space when it comes to advising on policies.
The tax, which is applied to everything from home and pet insurance to life insurance and private medical insurance (PMI), will increase from 10 per cent to 12 per cent in June 2017.
According to chancellor Phillip Hammond, IPT in the UK was still among the lowest in Europe - but after he had finished with the hike, it is now the sixth highest.
He told the House of Commons: "Insurance premium tax in this country is lower than in many other European countries, and half the rate of VAT.
"In order to raise revenue, which is required to fund spending commitments I am making today (23 November), it will rise from 10 per cent currently, to 12 per cent from next June."
For some employers, the increasing cost of providing PMI, dental cover and cash plans may even force them to stop offering some of these much sought-after benefits altogether.Morag LivingstonTwenty years ago, the standard rate of IPT was just 2.5 per cent but there have been further increases in the intervening period.
By the time of the 2016 Budget, some experts were warning these continual hikes could mean the average family in the UK would see their total household premiums increase by up to £190 a year.
Where the UK IPT rate sits now in Europe (Source: ABI)
- Germany
- Greece
- Italy
- the Netherlands
- Finland
- UK
Henry Cobbe, head of Copia Capital, says: "This IPT increase will most likely be passed through to the end customer.”
Morag Livingston, group risk and healthcare manager at Secondsight (part of the Foster Denovo Group), says this additional hike will only increase the number of people without any form of insurance.
She says: "These increases will have an impact for many employers when it comes to their healthcare provision.
"And for some employers, the increasing cost of providing PMI, dental cover and cash plans may even force them to stop offering some of these much sought-after benefits altogether."
Salary sacrifice changes
Also in the Autumn Statement, Mr Hammond announced the removal/restriction of the salary sacrifice mechanism for some employee benefits.
The tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars.
Mr Hammond targeted targeted salary sacrifice schemes where employees exchange some of their salary for a non-cash benefit in kind, where both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all.
The change essentially means employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income.
Any arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
However, this could pose problems for employers offering group protection as part of their benefits.
For some people, such as Katharine Moxham, spokesman for Group Risk Development (Grid), such a move could prevent employers offering, and employees taking up, vital insurance.
Ms Moxham explains: "We are obviously disappointed that government has not seen fit to give an exemption for group life or income protection where employees are able to increase their coverage through salary sacrifice.
"The amounts involved are small and the resulting change will simply add complexity for providers and scheme members.
"It will add a further burden on businesses which might otherwise have included a facility to allow their employees to build on a basic level of employer-provided cover."
There is also a seeming lack of joined-up thinking between government departments.
Earlier in November, the same month as the Autumn Statement was delivered, the Department for Work & Pensions (DWP) and the Department of Health issued an 88-page document Improving Lives - The Work, Health and Disability Green Paper, published jointly with the Department of Health.
This called on employers and the insurance industry to provide better and more tailored protection products specifically for use in the workplace.
According to Ms Moxham, it is important that group protection and income protection benefits are encouraged in the workplace, as they reduce the burden on the state, provide value to employers and employees and are aligned to the DWP's recently-stated goals of supporting people back to work.
For some, the timing of when the changes to the salary sacrifice schemes must come into force is also a potential problem for employers and their corporate advisers.
Steve Herbert, head of benefits strategy for Jelf Employee Benefits, comments: "This short timeline is likely to pose a genuine problem for many employers who may have to rethink their benefits offering."
simoney.kyriakou@ft.com
