| Link(s): | Regulation costs 5.2% of insurance premiums IPT increase would be bad for business & households |
Context
New research commissioned by BIBA, and undertaken by London Economics, reveals that regulation costs amount to 5.2% of insurance premiums collected. This breaks down as 3.3% for insurance brokers, and 1.9% for insurers, with costs being higher for brokers despite their lower systemic risk. This new research reveals, for the first time, the impact of regulation costs in relation to insurance premiums paid by clients. BIBA believes these figures are further evidence of the disproportionate costs of regulation that insurance brokers face.
Alongside this, BIBA has published details of further research about the impact of Insurance Premium Tax (IPT), which BIBA says shows that “increasing IPT would be a ‘bad decision’ hitting households and businesses”.
Key points to note and next actions
- London Economics analysed both the direct and indirect costs of regulation borne by a sample of BIBA brokers and insurers covering both personal lines and commercial business. Direct costs of regulation include the fees and levies paid, and indirect costs include expenses incurred to comply with regulations such as the internal costs of staff and procured compliance services.
- The research builds on a study from 2023 which found that direct regulatory costs for brokers are 40% higher than in 2019, and overall direct and indirect costs are equal to 8.1% of insurance mediation fees and commissions.
- The press release includes a long list of items that the research sets out as being part of the direct regulatory costs borne by insurance brokers, and the indirect regulatory costs borne by insurance brokers and by insurers.
- In relation to IPT, 54% of businesses surveyed said that an IPT increase would leave them struggling to afford their insurance premiums, and nearly 30% saying they would reduce business investment.
- The report outlines that IPT costs each household an average of £146 a year, and that businesses pay £4.7bn in IPT annually.
- IPT (at 12% of insurance premiums) raised £8.9bn in receipts for HM Treasury in 2024/25. If the cost of regulation is 5.2% of insurance premiums, that could amount to a total of £3.85bn. Fees and Levies paid by authorised firms would represent less than £1bn of that.