In the days prior to Budget 2016, there was a flurry of reports from Westminster insiders and insurance experts that insurance premium tax (IPT) would hit 12.5% writes Fiona Murphy.
The insurance industry feared that the rate of IPT would double in comparison to a year ago, when it was 6%.
The 3% rise in the Summer Budget to 9.5%, which came into effect last November, was a shock for the insurance industry.
Despite the rumour mill, this time George Osborne announced a slightly lower increase, just that of 0.5%, so the rate of IPT is now 10%.
Was this a last minute u-turn as a result of insurer lobbying or were the rumours leaked to make the new hike seem smaller in comparison? We can't know for sure.
At any rate, this additional funding will be used to shore up flood defences, the Chancellor said.
While the increase to IPT is much softer than expected, it is unwelcome news for private medical insurance and cash plans.
The declining PMI market still appears to be an afterthought and this seems in conflict with the Conservative's plans for workplace health and provision to fill the gaps in the NHS.
Analysis from the Association of British Insurers estimated that the previous increase to IPT likely added more than £40 to average private medical insurance premiums.
This is against the backdrop of declining sales and fewer lives covered every year for the past five years.
Meanwhile, insurers will fail to contain the impact of this additional cost, leading to even higher premiums for policyholders and employers.
It is likely to put off potential customers even further.
LaingBuisson memorably last described the IPT increase last year as needed like a "hole in the head" for PMI.
This new increase is a further blow for private medical insurers, advisers and their clients.
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