How the Public Sector Can Reduce the Impact of the Rise in Insurance Premium Tax
Public sector budgets continue to be pressurised as a result of the increase in the Insurance Premium Tax (IPT) levy to 9.5% from 1 November 2015. Unlike value added tax (VAT), IPT cannot be reclaimed and will add extra costs to already stretched budgets, therefore it’s important that all public bodies consider what the increase could mean for them.
Marsh has long advocated the need to stress test existing insurance placements: The increase in IPT lends weight to the need to review your existing insurance arrangements and ensure you are buying the cover you need today, as opposed to that which was required several years ago. By aligning your insurance programme to your strategic objectives you will drive out inefficiencies in the programme and achieve true value in the insurance market.
A review process should look at the following:
- Property sums insured: Are these up to date? Most insurance policies require rebuilding costs and not market value. The best case is that you are paying too much premium; the worst case is that you are underinsured and will have claims reduced to reflect the degree of underinsurance.
- Outsourcing: Have you made your insurers aware of any services that have been outsourced? If the risks attaching to such services now sit with a contractor, why should you pay insurance premium for them? Create a list of outsourced services, identify claims attaching to them, and discuss your rating with your insurer to obtain premiums that reflect the risks you are carrying.
- Claims reserves: How long has a claim been open without a review? By reviewing your outstanding claims reserves you may be able to close claims which have been dormant for some time, or agree more realistic reserves. If your outstanding reserves are down, you stand a better chance of obtaining more competitive premiums.
Do not rely on peer-group benchmarking to drive the cover you purchase. Cover requirements should be driven by your own appetite and tolerance to risk, and should support your own corporate plans. By using benchmarking alone, you can establish a programme that may only be fit for purpose for another organisation.
By applying the principles of good governance to your insurance programme design, you will achieve best value in the insurance markets and ensure you only pay the premium you need to. It follows, therefore, that the unrecoverable IPT will be kept to a minimum.