The government raised the rate of tax on car and home premiums by more than 50% in November. This is likely to have a big impact on the cost of cover.
One of the most innocuous-sounding changes announced in George Osborne’s July Budget saw millions of Brits pay more for the likes of car and home insurance.
The Chancellor raised insurance premium tax (IPT) by more than half from November 2015.
The rate increased from 6% to 9.5% - according to Osborne, this'll bring the levy more in line with the rates charged in other major economies.
During his Budget speech, Osborne claimed that IPT in Britain was "well below tax rates in many other countries".
IPT is levied on the most common types of insurance, such as car, buildings and contents cover.
Some types of cover, for example life insurance and long-term health insurance, are exempt. Travel policies are already taxed at a higher rate of 20%.
How are you affected?
So what impact will the tax rise have on the finances of the average family?
According to the figures from the Q2 2015 Confused.com / Towers Watson Car Insurance Price Index, the cost of an average comprehensive policy was £600.
This represents a premium of £566 plus £34 tax at the present 6% rate.
However, the cost of a typical policy would be £620, £20 more, if tax were charged at 9.5% - assuming the insurer passed on the cost of the extra tax in full to their customers.
Young motorists worst hit
Young drivers are more likely to see a bigger price rise because their premiums are considerably higher: the Q2 2015 Index found that the average 17-year-old paid £1,869 a year for cover.
Raising tax from 6% to 9.5% on a policy at this price would add more than £60 to the annual cost.
Home insurance premiums tend to be lower, so here the impact will be less severe.
According to figures published by the Association of British Insurers at the start of the year, the average buildings policy costs £230 while contents cover is typically £124.
Danger of cutting back
The total of £354 for both types of home insurance would rise by £12 to £366.
For a family insuring two cars – one of which is driven by a young person – as well as a home, the forthcoming IPT rise could easily see them pay £100 extra a year for insurance.
Worryingly, analysis from Consumer Intelligence suggests that some people may cut back on the level of cover they have as a result of the tax hike.
A survey carried out by the firm found that more than a quarter of customers said they would reduce cover or cancel policies altogether following the expected price rises.
Rise in uninsured driving?
Others said they would use any cost increases as an incentive to shop around for a better deal.
Ian Hughes, chief executive of Consumer Intelligence, said:
"The rise in insurance premium tax 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."
This would be especially problematic if motor insurance was scaled back, Hughes added.
"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."