Insurance implications of the 2014 Budget

Published by Kim Durniat on

Arnab Debnath contributed to the writing of this blog

On 19 March, the Chancellor of the Exchequer gave his fifth Budget speech of this parliament. One of the biggest changes came in the form of the requirement for buying an annuity being removed. If you would like to read some of the implications of the 2014 Budget on the pensions and annuity market, why not read our blog on defined benefit pension schemes. We however in the insurance team decided to take a look at some of the insurance implications of the Budget on the insurance industry.

Flood defence

Many parts of the UK were hit with severely bad weather this winter which left many families without electricity and some in temporary homes. The ABI estimated the UK winter storms and floods cost insurance companies £1.1bn (£446m from flooding alone). Much discussion followed as to whether the government was taking this problem seriously enough. The thoughts of many were that despite years of flooding across the UK, not enough was being spent to take preventative action. George Osborne announced an additional £140m to be spent for flood defence repairs and maintenance; this is expected to be in addition to £130m promised in February of this year. Many will be pleased to hear of additional funds are now being put into place but it is likely that those in the hardest hit areas will think of this as well overdue. If these new funds are used effectively, it will mean that insurers are likely to pay out smaller amounts in claims in future years.

Potholes

The bad weather also led to many potholes being created across the UK. Britannia Rescue claims that potholes across the UK cover an area of 295 square miles, more than twice the size of the Isle of Wight. The Budget included £200m being made available to repair crumbling roads. With these fixed potholes, insurers will hope that they are not paying out so much worn-out suspension systems. Problems from potholes come in the form of tyre damage, damaged suspension and broken wheel rims which on average total £583 per claim.

The new £1 coin

It has been announced that a new £1 coin will be introduced in 2017. The new coin will have 12 sides (dodecagon). It is estimated that 2-3% of the pound coins currently in circulation are imitated and this costs both businesses and taxpayers millions each year. It is illegal for a company to pass on money it knows to be counterfeit. Businesses currently purchase crime/fidelity insurance which protects them against forgery, employee dishonesty, counterfeiting etc. This new currency should bring down the amount paid out by insurance companies. The introduction of the coin will mean that vending machines and car parking meters will have to be altered which could cost the economy between £15-20m.

You may also be interested to know that all the coins currently in circulation have a constant diameter.  Despite not being round, when you roll a 20p/50p along a flat table top it always stays at the same height. However, with the introduction of the 12-sided coin, this will not be possible anymore making the jobs on the vending machines all the more difficult.

Barnett Waddingham’s comments

We will have to wait to see whether these funds are put to good use.  In particular some parts of the UK are still battling with fixing rail tracks and also their homes.  This winter left many people angry with the government.  If there is another year of extreme flooding and insufficient flood defences are in place, it would be very damaging for them.  One thing is for sure is that the government can never spend enough on preventative measures.