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Home insurance costs rise thanks to tax hike and are set to balloon further due to storm damage

  • Insurance Premium Tax went up from 6% to 9.5% in November
  • The costs have already been passed onto customers from insurers
  • Premiums set to rise further still this year thanks to storm damage

The average comprehensive home insurance premium has climbed 3.1 per cent in just three months thanks to higher tax costs being passed on by insurers to their customers, data shows.

Furthermore, it is likely that cover will balloon in the coming year, with market research experts Consumer Intelligence saying flood and storm damage will put pressure on premiums.

In last years Budget, Chancellor George Osborne increased Insurance Premium Tax from six per cent to 9.5 per cent. The changes came into force in November 2015 and this is the first evidence costs are being passed on to customers.

IPT is a tax on insurers and is added to general insurance products such as car, home and travel cover.

It is expected to add more than £100 to insurance costs of a family with two cars, pet and medical cover and will affect around 50 million policies in total.

Separate data from the Association of British Insurers shows motor premiums rose by seven per cent in the last quarter of 2015. It says around half of this rise was down to the IPT increase.

The trade body is urging the Chancellor not to be tempted into increasing the tax further in the Budget next month.

It says: IPT should not be seen as a soft touch tax to raise revenue as any increase leads to a further financial squeeze on millions of households and businesses who have done the right thing and taken out insurance.

The ABI predicts that it will raise more than £8billion for the Treasury in the next five years, making it the biggest revenue raiser from the 2015 summer Budget.

Consumer Intelligence, which is used by the Office for National Statistics to calculate official inflation data, says the IPT rise is now reversing years of falling premiums.

It also warns that recent storm and flood damage could exceed £1.5billion, increasing the upward pressure on premiums.

Home insurance costs are 9.5 per cent lower than at this point in 2014, but rises in the coming year are expected to eat into this reduction.

Ian Hughes, chief executive of Consumer Intelligence said: Unfortunately the only way is up now for home premiums following years of price cuts driven by a big reduction in burglaries and fewer claims for flood and storm damage thanks to recent milder weather.

Last month, the ABI revealed that around one in five home insurance claims are unsuccessful, largely thanks to complexity of policies.

Wear and tear, along with damage caused by lack of maintenance in homes are also key reasons for failed payout bids.

In contrast, 99 per cent of car insurance claims and 87 per cent of travel cover claims resulted in a payout. The ABI published the figures for the first time using analysis of claims made in 2013 and 2014.

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