24 June 2010,

Hidden costs of emergency budget will impact brokers and policyholders

warns Kevin Kiernan, Director of Personal Lines, Groupama Insurances

Kevin Kiernan, Director of Personal Lines, Groupama Insurances believes the IPT and VAT changes announced in the emergency budget will have far-reaching consequences beyond the initial pain to policyholder's pockets.

Kevin Kiernan comments: "Tuesday's confirmation of the rise in IPT was no great surprise but rather disappointing all the same. But while much of the current focus is on how this might impact policyholder premiums, what needs also to be considered is that the change itself will create a whole raft of costs to brokers and insurers that will need to be passed on. For example, from an administrative point of view, a 1% increase in IPT creates the need for IT system changes in broker and insurer businesses across the UK and depending on the level of technology used, won't necessarily be as simple as changing a figure from 5 to 6.

"However, the bigger cost to the insurance sector that has not been highlighted as yet is the increase in VAT from 17.5% to 20% in January 2011. This change will increase all repair costs and services which make up the claims on most forms of insurance. As insurance companies are exempt from VAT they will not be able to claim the full effect of this back which will lead to an increased claims cost. This, in turn will eventually hit premiums."

"There is no doubt that Mr Osborne has had a very difficult task and while the changes announced will help reduce the deficit, let's not under-estimate the impact these will have on brokers, insurers and policyholders."