In the dynamic world of business, a new product, new acquisition or new competitor is only a day away. It can seem like more changes each year than remains constant.
That being said, now is a pivotal time for businesses to reassess their insurance needs. This is due to a confluence of factors on the short-term horizon that we’ll cover in this article.
Whether you use an insurance broker or buy all policies directly from an insurer, we’ll explain below why you should reassess your coverage this month to check that you’re totally satisfied with your existing provision.
Inflation is a global issue
Global supply chains have been disrupted by the pandemic, resulting in pockets of shortages in key components which is hampering manufacturing around the world. Miners and growers of raw materials are also struggling to secure the machinery (and sometimes the labour) to return to pre-pandemic levels of production.
This is all leading to supply shocks in everyday items which is causing prices to rise. This is contributing to consumer price inflation, measured by the ONS CPI index. In the twelve months to February 2022, inflation has rocketed to 5.5% which has frankly shocked most of the British public, who had been familiar with only sub-2% inflation levels up until 2021.
The price of insurance is rising too
The insurance industry isn’t immune to the same inflationary factors. While business insurance doesn’t require a supply chain of spare parts, it does require a lot of skilled manpower and labour markets are equally tight. Wage inflation has ravaged many sectors, and the ‘great resignation’ has forced companies to up their salary offering to attract new staff to replace churn.
This is all resulting in an inflationary environment that shows no sign of stopping.
In such a market, there are obvious benefits to renewing your insurance policies as soon as possible.
This is the case because insurance premiums are locked-in at the start of any insurance term. Therefore, you are protected against inflation during the course of the annual period. Other factors may result in insurance premiums being retrospectively increased – but these are connected to exposure levels (such as employee life insurance increasing because a business hired more staff than expected during a year). The underlying price per £ exposure will remain fixed.
The Chancellor is looking for new sources of revenue
Despite the Conservative Party being associated with tax cuts and lower regulatory costs, the current economic pressures on the nation’s finances are resulting in very unfamiliar changes by the Tory Chancellor Rishi Sunak; namely, tax rises in several areas.
In April 2022 the rate of national insurance paid by most UK workers increased, and from April 2023 the amount of tax paid by working pensioners will also rise. In an effort to compensate for the deficit between public spending and taxation, the Government is looking for ways to raise further funds.
The Insurance Premium Tax (IPT) is being mooted as another potential target for the Chancellor in the October budget. It has been a regular source of additional income in the past, with the higher rate has risen from 17.5% in 2011 to 20% now. Any further increases will directly affect the price that businesses will pay for insurance policies, and this puts further time pressure on the need to buy insurance before such tax rises can be announced and put into effect.