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LONDON (Alliance News) - Car and home insurance premiums are set to increase due to an upcoming increase in the UK's insurance premium tax, the AA said on Tuesday.
The roadside assistance company said it thinks that premiums could go higher due to the UK government's move to increase the standard rate of insurance premium tax to 9.5% from 6%. The new tax rate will apply from November.
Shares in FTSE 100 insurers Admiral Group PLC and Direct Line Insurance Group PLC were up 3.0% at 1,497.00 pence and 1.4% at 361.70p, respectively, on Tuesday morning, while Legal & General Group PLC shares were down 0.3% at 271.73p. Shares in esure Group PLC, the FTSE 250 insurer, were up 1.4% at 268.00p.
The AA thinks the tax change will add GBP5 to the average home insurance policy, and GBP18 to the cost of a typical comprehensive car insurance policy.
According to the AA's British Insurance Premium Index, the average quote for a typical comprehensive motor insurance policy rose to GBP549.46, up 5.2% over the three months ended June 30.
"Car insurance has shown a sharp increase after showing the first upward signs over the first quarter. This brings to an end three years of premiums falls, thanks to a fiercely competitive market. The falls have continued despite rising injury claim costs," the AA said.
The average quoted price for both buildings and contents insurance policies increased for the first time since 2012, the AA said.
The cost of standalone buildings and contents policies each rose by a modest 1.3%, according to the index.
"Relatively benign weather ? notwithstanding the floods of February 2014 ? has led to growing competition, forcing premiums down," the AA said.
The typical premium for a combined buildings and contents policy fell by 0.4% to GBP152.27 over the three months, the AA said.
Kevin Roberts, broker director for Legal & General Insurance, said the news could mark the "beginning of the end" for the soft market in general insurance.
"Initially, the increase feels counterintuitive - competition is still running high in home insurance, and we?d expect motor premiums to roughly correlate. Either way, recent price reductions have eroded insurer funding for long-term weather events, and the market needs to concede that the recent benign weather will not last forever. Increases are required to rating, and it is pleasing to see the first signs that the market has stopped falling," Roberts said.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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