The planned rise in Insurance Premium Tax (IPT) will trigger a surge in insurance customers moving to new providers and cutting back on or cancelling policies according to research.
A study from market research firm Consumer Intelligence found that 56% of customers will switch or consider switching once the tax rise takes effect in November while 27% of customers will cancel policies and/or reduce cover.
The Summer Budget increased IPT from 6% to 9.5% which is estimated to raise nearly £1.5bn and boost premiums for motor, breakdown, home, buildings, pet, private medical and mobile insurance. Consumer Intelligence estimated it would add £20 to the average motor policy and £50 for under-25s.
Consumer Intelligence’s Switching Index, based on responses from more than 11,000 home and motor policyholders, showed that 39% of motor customers switched in the year to May.
The main reason for moving was price with 54% of motor customers moving for a lower price.
However the tax rise is likely to boost switching – although 16% of customers believe that as all insurers will be affected there is little point in moving.
Ian Hughes, chief executive of Consumer Intelligence said: ”The rise in IPT will have a massive impact with customers looking to move in response to premium rises which are nothing to do with insurers.
“The biggest concern is that people are considering cutting back or cancelling insurance policies in response to the price rises. It is an easy saving to make but could end up costing them and other road users more in the long run if the means more uninsured drivers.”