UK budget: investment in flood defences; life insurers breath sign of relief
While the big highlight of today’s (March 11, 2020) budget in the UK was the £30 billion to be made available to help get the UK economy through the coronavirus, there were also a couple of highlights for insurers including new measures on dealing with the risk of flooding.
The UK chancellor Rishi Sunak made some £300 million immediately available to help communities recently affected by floods but has also doubled the UK’s flood defence investment to £5.2 billion over the next six years – a move that was broadly welcomed by the sector.
“The extra investment in the country’s flood defences will be a much-needed boost to homes and businesses impacted by the recent storms, the damage from which is still clear to see in many parts of the UK,” said Simon Welton, market head P&C, UK & Ireland, at Swiss Re.
“However, it will still take time for this money to translate into actual schemes to protect or alleviate the risk of flood. This investment should be part of a concerted and coordinated effort by the government, insurers and the wider business community to build more resilience into our infrastructure and help mitigate the growing danger of climate change on our lives.”
James Hillon, insurance director, KPMG UK, added: “Even in March, this year has already been a devastating reminder of how damaging floods can be for households and businesses across the UK. The government’s increase of spending in flood defence to £5.2 billion is an example of a proactive attempt to make communities more resilient and ease some of the pressure on insurers who are currently bearing a disproportionate amount of the burden.”
Another point in the budget of interest to insurers was a response to concerns by life insurers about capital loss restrictions being imposed on them.
Matt Smith, financial services tax adviser at Mazars, explained: “The government has proved that it is receptive to genuine concerns posed by the life insurance sector. It has responded to industry representations warning against imposing capital loss restrictions being implemented on life insurance business that could have substantial losses.
“It has provided them with an exemption from the new capital loss restriction rules that are coming into effect. Now isolated from a major potential impact, many in the sector will today be breathing a sigh of relief.”
Keith Richards, managing director of engagement for the Chartered Insurance Institute, also noted some of the measures announced around pensions and how care will be funded.
“This budget will be remembered as one where the UK geared up to battle against the economic fallout from the coronavirus outbreak,” Richards said.
“While it is understandable that the government’s focus is on the immediate financial needs of people and businesses affected by the coronavirus it is important that the Autumn Budget focuses on more measures to make sure people have enough cash to last a lifetime.
“The increase to the national living wage and annual allowance for pension saving won’t stop people sleepwalking into a care funding crisis or running out of cash in retirement.
“We hope the government will review ways to improve access to financial advice and guidance for all. I hope the review of insurance premium tax, that was announced in the Budget, will result in this levy being axed as it has increased the cost of cover for consumers.
“Since 2015 the insurance premium tax rate has doubled to 12 per cent and led to the increase in premium rates charged by insurers.
“The government’s coronavirus measures recognise that many individuals and businesses lack a financial safety net. The government needs to rethink insurance premium tax and make sure individuals as well as businesses can afford to access insurance that will assist them if work is disrupted, travel plans have to be abandoned or loved ones die.”