Budget 2011: Protection tax reform could push up premiums by 30%

24 March 2011 8:15 am | By Natalie Holt

Protection premiums could rise by up to 30 per cent following the Government’s move to remove protection business from the income minus expenses basic life insurance tax regime.

The change, which HM Revenue & Customs has already consulted on, will be effective from January 1, 2013.

RGA managing director David Gulland (pictured) says the cumulative effect of the recent European Court of Justice ruling banning the use of gender, Solvency II, and the latest changes to I-E could be to drive the cost of life cover up.

Gulland says: “While the full implications of these changes are yet to be fully understood and will vary by individual company, combined they could typically push rates up for some companies by 30 per cent for females buying life cover.”

Speaking at the Protection Review conference last July, Grant Thornton senior actuarial consultant Nigel Cooke predicted the removal of protection business from the I-E regime could see premiums rise by up to 10 per cent.

Bluefin Corporate Consulting head of technical Robin Hames says: “With the ECJ, Solvency II, and the I-E changes thrown into the mix, what you are doing is dampening down profitability. There are multiple pressures being applied to life offices and it is bound to mean that they will have to change the margin on products.”

But Ageas Protect managing director Martin Werth says: “This may unlock more innovation in the market because the barriers to entry are reduced.”

Under the current I-E structure, companies with large savings books can use their savings business to offset the expense of writing protection business.

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