How to mitigate insurance premium tax rises

The next hike in business insurance premiums is not a reaction to increasing thefts or smashed display cabinets, but instead many consider it to be a snatch by the government as it raises Insurance Premium Tax (IPT) once again. With the snap election announced for June 8, some in the industry believe there is a chance the IPT rise will be byfully two percentage points, coming into effect from June 1. In all likelihood, the increase will go unreported and unnoticed by the national press. In these circumstances the overall tax would reach 12%, having already risen three times in the last two years, and representing double what it was in October 2015. The more sceptical busnesspeople out there smell a rat: the tax is creeping gradually toward 20% to bring it in line with VAT. Small but still a problem Although a relatively small increase that will simply be added to premiums, it would be wrong to ignore the pressure this increased cost will cause businesses in the jewellery sector, with concern as to the reaction by those already paying high premiums and what they might do in response. Retail jewellers, already competing with online retailers which often pay less insurance anyway, may struggle to raise their own prices to cover the increase. This raises the risk that some businesses will be tempted to cut their insurance cover in an attempt to keep premiums at their current, more affordable levels. Worse than that, if the smallest businesses or those on very tight margins see this 2% rise as the final straw, they might consider not taking insurance at all. Although the rise is potentially due on June 1, it’s important business owners and managers give themselves time to consider all the options available to them, to try and cover the expected premium increase without affecting the cover their policy provides. Be prepared to question your insurer Loyalty is a good thing, but as any bank customer will testify, it can come at a price when new customers often appear to get better deals. Regardless of how longstanding your relationship is with your current provider, you must challenge your insurer to do better. It might be years since you have obtained alternative quotes and if you are going direct assuming it to be cheaper, now would be a good time to see what an insurance broker has to offer. There is little doubt that some insurers and brokers hope their customers are too busy to spend a long time considering whether the premium they are paying is as low as it could be. Insurance premiums are just seen as a necessary business expense that typically gets left until the renewal notice arrives before any thought is given to them, and by then there is little time to do much. Most businesses will be surprised how long it can take to obtain alternative quotes each year. Some insurers will even choose not to quote if they feel their prices are just being used to reduce the premium of the current insurer, which will prolong the process. To get the best price, there must be a genuine chance for the insurer to win your business. The most professional insurance brokers will usually market a client’s business every few years as a matter of course, confirming the premiums are the best value for money - but it’s worth asking the question of your broker. Take care and ask for a rebate The potentially large payouts for damages, negligence, injury or in the case of jewellers, robbery, means high insurance premiums are normal for many businesses and yet most will never make a claim. When renewing your policy, there are insurers that will agree to a rebate off your annual premium, if you do not make a claim, or if the value of the claims is below an agreed level. Rebates are usually only available for those paying premiums of around £10,000 or more, but they may vary from as little as 5% to as high as 15% of the annual premium, which is certainly enough to cover the 2% rise in June. Don’t forget your improvements Something you must not overlook when trying to lower your insurance costs is the impact any improvements you have made to your business operation or activities, might have on risk. Many of the changes made, like introducing new security features (HD CCTV, airlock-style access doors or new roller-shutter grilles) or new staff vetting procedures, will often reduce the risk of a claim – and could possibly lower your annual premium. The reason these changes rarely translate into reduced premiums is because few businesses make their broker or insurer aware of what they have done. It pays to detail your changes and ask if they will reduce your premium; asking costs nothing. Time to consider a larger excess The excess you are prepared to accept will also affect your premium. If you currently have a low excess but have rarely, if ever made a claim, consider accepting a larger policy excess, which might secure you a discount that covers the 2% IPT rise. Watch out for the extras If you have been in business for any length of time, you will undoubtedly have changed the way you work and introduced or discontinued products or services, without ever once thinking about your insurance premium. When reviewing insurance cover for a business, it is likely a broker will find ‘extras’ being paid for that are no longer needed. Premiums might include cover for large amounts of cash on the premises or in transit, when card payments are now more common or you are no longer manufacturing on site, having outsourced to a service provider - who should cover the risk at their expense. Moaning at yet another rise in insurance costs will do you no good; running through every aspect of your business in person with an experienced broker - not a call centre - will ensure you get the right level of cover. Consider more than one year Reviewing your cover every year is good practice, but for those businesses paying high premiums, it can pay to find an insurer that will guarantee rates or offer discounts if you agree a 2 or 3-year policy (further IPT increases will still apply). Some of these insurers might offer further benefits to win your business, like interest free instalments, or a contribution towards improvements you can make to reduce risk. Give yourself time Unless the Government has a change of heart, which is extremely unlikely, there is no avoiding the IPT increase. However, you can be proactive and consider all your options and hopefully the reduction you achieve will at least match the increase, without reducing your cover. The key to lessening the impact of this latest IPT rise and insurance costs in general, is to do something and start negotiating your new policy in plenty of time. About the author: Phil Cowell is a chartered insurance broker and director of IFM Select, a privately-owned insurance brokerage, offering individually tailored business and personal insurance. This article first appeared in the May 2017 issue of Jewellery Focus