Insurers will be liable to pay for VAT on GP reports
New pressures from the tax man could see protection products suffer further premium increases. A European court judgement has ruled insurers will have to pay VAT on GP reports, which are needed to gather medical evidence on some applications.
Although the ruling will not come into force immediately, the Association of British Insurers (ABI) has warned the market should brace itself for premium hikes in the future.
Richard Walsh, head of health at the ABI, said: "The UK Government will have to implement the judgement going forward, which means there will be an additional cost to meet in the future. This will clearly have an impact on premiums. Someone has to pay."
Walsh said both insurers and advisers had a role to play to help keep costs down. "Insurers will have to be careful before sending off for GP reports if there is no evidence of clinical problems. The emphasis has to be on the importance of full disclosure on application forms," he said.
To help improve disclosure on applications, the ABI is planning to consult in spring 2004 on new guidelines, or even market-wide standardisation of application forms. However, full standardisation could raise some competition issues.
"We may look at producing a model application form, but the Office of Fair Trading is wary of standardisation, as it believes it can reduce competition. In the meantime, advisers have a big role to play in making sure clients understand the importance of full disclosure when applying for cover," said Walsh.
At the time of going to press, the ABI had attended a preliminary meeting with Customs and Excise about the introduction of VAT. The Government is yet to decide if there will be a formal consultation exercise on how the new tax will be introduced. Theoretically the earliest point it could be brought in is with the next Budget, but the ABI said it was unlikely a change in legislation would have been realised by that time.
