Budget 2016: a mixed bag for the insurance industry
Holly Deakin contributed to the writing of this blog.
On 16 March 2016 Chancellor George Osborne delivered his 2016 Budget. The announcements provided a mixed bag of news for the insurance sector.
Insurance premium tax
Claims management companies
Driverless vehicles
Insurance premium tax
Insurance premium tax (IPT) will increase from 9.5% to 10% on 1 October 2016. The increase comes despite strong discouragement from the Association of British Insurers (ABI), and over 20 senior executives from general insurance companies writing to the Chancellor urging against further increases in IPT. In last year’s summer budget, IPT was increased substantially from 6% to 9.5%, and this has caused the cost of insurance to rise for consumers.
Life insurance products are exempt from IPT. The 2016 Budget is requiring a further 0.5% rise, which is forecast to generate an additional £700 million in revenue. The Chancellor has promised to devote this additional revenue to substantive increases in flood defences. The recent winter flooding in the UK, driven by storms Abigail to Frank, are estimated to have caused £1.3 billion of insurance losses.
Investment in flood defences is essential to mitigating the increasing risk that floods pose to the UK. Whilst the rise in IPT is not warmly welcomed by the insurance industry, the devotion of funds to flood defences is.
Claims management companies
The Financial Conduct Authority (FCA) is to take over responsibility for regulating claims management companies (CMC). This news will be music to the ears of the insurance industry, which has been plagued with issues from CMC in recent years. Tighter regulation is required to control the constant customer harassment and encouragement of frivolous and fraudulent claims.
"The insurance industry must monitor the development of autonomous vehicles intently because the potential consequences on the sector are profound."
Going forward, the new regime will be tougher and will ensure the managers of CMC are personally accountable for the activities of their businesses.
Driverless vehicles
Driverless cars and lorries will be trialled on UK roads from 2017. The tests will take place on a strategic road network, and a £15 million connected corridor will be built between London and Dover.
The Chancellor stated that he wants the UK to be a “global centre for excellence in connected and autonomous vehicles.” London is due to receive its first fully autonomous electric pods in July 2016.
The insurance industry must monitor the development of autonomous vehicles intently because the potential consequences on the sector are profound.
Autonomous vehicles remove the human error element of risk which could have a dramatic reduction in the claims experience of motor insurers. Consequently the market could see a switch away from personal lines motor insurance to product liability insurance, as the risk is transferred from the individual to the manufacturer.
In addition, driverless vehicles could eliminate fraudulent claims, due to the increased quality and quantity of data available.
