Friday, 25 November 2016

The prudent should be rewarded, not penalised.

I was at The Association of Medical Insurance Intermediaries (AMII) summit just a stone’s throw from The Houses of Parliament when the news about the 2% increase in Insurance Premium Tax (IPT) broke. A financial journalist told me – but I didn’t believe him and thought this must be a rather poor joke. Three increases on a tax on essential services in 15 months? Surely not! But yes – Philip Hammond with his Autumn statement has hoodwinked the public into believing that this increase will have little personal impact on them. This is without doubt a major stealth tax.

Even the BBC played down this tax in their evening news bulletin stating that IPT applied to ‘cars, homes and some possessions’ A bit more than that I fear.

Let’s start general insurance. Motor insurance is mandatory so when then increase comes into force it will have an immediate impact on all drivers and owners of vehicles used for personal and/or commercial purposes. What isn’t mandatory is the level of cover required as long as the minimum third party liabilities are insured. Likewise with home and contents insurance, some mortgage providers insist on buildings cover but the rest is down to the owner/tenant’s discretion. Theresa May’s government purports to supports the JAMs (those ‘just about managing’ – an unfortunate acronym for so many reasons) but these are the very people who could be hit hardest by increasing insurance costs. Insurance is not a luxury – it is a necessity and ‘JAMs’ may be tempted to scrap cover or purchase inadequate levels which could ultimately lead to significant hardship. Insurance roulette is a game that no-one should have to play.

It would appear that Mr Hammond is penalising the very behaviours that he wishes us to emulate – prudence. Instead of being encouraged to forward plan and avoid risk, the prudent who take appropriate insurance cover will end up with lighter pockets thanks to this uplift in tax– not good.

But the area that is being ignored is the impact of increased IPT on private medical insurance (PMI).  Yes – it does apply to corporate and personal PMI premiums and no – the government does not offer any incentive to those who contribute to the cost of their own health care threefold – once through taxation to fund the NHS, once through their premiums if self-paid (or through benefit-in-kind taxation if company funded), and again through IPT.

At the AMII conference on Wednesday insurers, intermediaries and the well-informed were all reeling at the shock announcement. Ironically just a couple of hours previously we had been discussing the role of private healthcare in the UK and the value it can deliver in supporting the NHS. The levy on PMI premiums had been described by one speaker as an ill-conceived taxation.

Currently 10.6% of the population in the UK are covered by some form of private medical insurance. Yes – 10.6%. The independent healthcare sector is worth in excess of £40bn annually – not to be overlooked. Putting political shenanigans aside such as comments on ‘the privatisation of the NHS’, detractors of the private healthcare industry should consider the support that the sector can and does provide to the NHS. While the vast majority of us want to see additional investment for the state funded system, in the meantime capacity issues and waiting times within the NHS are now increasingly alleviated by subcontracting into the private sector. The reduction of waiting time for ‘cold’ but nonetheless essential surgery such as hip replacements can make a huge difference to NHS patients.

Any increased taxation on the insurance that funds the majority of private patients can only have a negative effect on this industry sector as a whole. But there could be a more immediate and potentially catastrophic impact of this increased taxation. While I have faith that the PMI industry is sufficiently robust to cope with this latest setback, there can be no doubt that a 2% uplift in tax applicable to premiums will send some individuals and corporate customers to decide that their PMI is no longer affordable. Indeed one insurer I spoke to said this could be their ‘tipping point’ for individual PMI.

And who will be the individuals who opt out of private cover due to rising costs? They will be the over 50’s – those who are starting down the slippery slope to increased healthcare needs. These healthcare needs will have to be met by the already creaking NHS which could potentially face a flood of patients who previously would have been treated in the private sector. Add to this the number of corporate PMI schemes that may shrink – possibly only covering management or senior staff, and Philip Hammond may be creating a perfect storm to further compromise an already bloodied and bowed public offering.

Sadly, after many discussions with Members of Parliament and political commentators over the past few years, I must accept that there would have to be a huge shift in public opinion before any government would risk supporting investment by individuals and companies in private medical insurance. In these troubling times of ‘pitchfork politics’ unfortunately no political party has the courage to adopt this wise and pragmatic approach. Instead, by missing the bigger picture, the Chancellor has inadvertently dealt a potentially highly damaging blow to the much loved NHS.

A sustainable solution for healthcare in the UK must include an understanding of the fine balance to be achieved between the public and private sector, along with an appreciation of the insurances required to facilitate access to paid care.