The key insurance issue in today’s Budget is probably the increase in Insurance Premium Tax of half a per cent, from 9.5% to 10%, applying from 1 October 2016. As regards the ‘compensation culture’, two topics points are noteworthy, first the repetition of the Autumn Statement reforms and second a big change in the way claims management companies are to be regulated and monitored, with the FCA to step in to oversee the sector.
The increase in IPT is lower than that speculated on in the media over the last few days. It will be introduced on 1 October 2016 and will therefore apply straightaway to the majority of solicitors’ professional negligence policies which renew on that date.
The increase is expected to raise around £200m in each full tax year, which is to be hypothecated to improve flood defences. Hence the Treasury statement that “Flood defence and resilience funding will be increased by more than £700 million by 2020-21, funded by a 0.5% increase in the standard rate of Insurance Premium Tax “. The Treasury estimates that this increase in IPT will add around £2, on average, to motor premiums.
The Budget materials repeat the Autumn Statement proposals (from November 2015) to ban general damages in soft tissue injury claims and to increase the small claims limit for injury claims to £5,000; although no date is given for implementation or for the start of the necessary consultation(s) that have to precede these changes. It should be borne in mind that Treasury suggests that savings of £40 per motor policy could be realised by introducing the two measures outlined above.
There are also clear plans to bolster the regulation of claims management companies and to improve how they deal with consumers. The Budget materials confirm that oversight of this sector will move to the Financial Conduct Authority: “The government will establish a tougher regulatory regime for claims management companies (CMCs) including by introducing a Senior Managers Regime, requiring reauthorisation of all CMCs and transferring supervisory responsibility from the Ministry of Justice to the FCA. The dates for the transfer will be announced in due course.”
This clear commitment goes further than the report of the independent review of this sector, also published today, which noted that the least disruptive option would be for regulatory oversight to stay with the MoJ and added that “if, however, the Government wants a step change in the regulation of the sector, then the balance would shift in favour of the FCA.” The language of the Budget means it is no longer a case of “would” and this “step change” is going to happen.
In summary, there looks to have been some shrewd footwork by the Chancellor in proposing a lower increase in IPT than that leaked debated over the last few days. The reforms to the claims management sector are likely to be welcomed by general insurers but here – as with the proposals in Autumn Statement – it is likely that the market will expect his aims and ideas to translate very soon into detailed consultations and a specific timetable for implementing meaningful change.
About the Author
Alistair Kinley is BLM’s Director of Policy & Government Affairs.
Alistair is responsible for BLM’s engagement with government departments and regulators on policy and public affairs issues and consultations affecting the firm and its customers. He coordinated BLM’s market-facing activities in connection with the Insurance Act 2015 and the consultations which preceded its publication and introduction in Parliament.
He is a member of the Civil Justice Council (CJC), a regular speaker and experienced commentator on legal and procedural reforms and was a contributing editor to the Law Society’s Litigation Funding Handbook (September 2014).