Millions facing a hike in insurance premiums

• Increase of up to �100 a year expected for typical family

• Twenty million drivers and homeowners to see a rise of up to ten per cent

• Due to stealth tax on insurance providers likely to be passed to customers

• Rate on providers to rise from six to 9.5 per cent from November this year

• People in high-risk groups who already pay the most will see biggest rises

Younger and older drivers, and those who live on flood plains or in other high-risk areas, face even steeper rises in their costs.

Janet Connor, managing director of AA Insurance, said: �This is a very bad day for car and homeowners. This will hit them hard.

�Any contention that falling insurance premiums somehow justifies the tax increase is outrageous. The increase in insurance premium tax simply has not been thought through and will have unintended consequences.

�This will make insurers think again about their pricing and I wouldn�t be surprised to see an overall increase of 10 per cent or more by the end of the year.�

Insurance premium tax is a levy charged on some types of insurance policies. There are two rates � a standard one of 6 per cent, for car, buildings, contents and pet insurance, and a higher rate of 20 per cent levied on travel policies. Life insurance is exempt.

In his Budget yesterday, the Chancellor announced that the standard rate would increase to 9.5 per cent.

The new rate will apply to policies taken out from November 1. Other policies will be charged the 6 per cent until March 1, 2016, at which point all those that qualify for the standard rate will pay 9.5 per cent.

NEW CURBS ON NO-WON NO-FEE

The fees charged by no-win, no-fee claims management companies are to be capped as part of a review that is expected to cut fraud and nuisance calls.

The firms � which pursue claims for accidents, injuries and PPI � charge fees which are taken out of the compensation awarded to consumers. They have been accused of driving up premiums, bombarding people with calls and encouraging fraudulent claims.

The Chancellor said: �We�re announcing a major review of the regulation of claims management firms and we�ll cap the charges they apply.� Huw Evans, from the Association of British Insurers, said: �Poorly regulated claims management firms have been hiking up the cost of insurance for far too long. The Government is right to tackle this aggressively.�

Although the tax is levied on the insurers, it is passed on to customers and priced in to their premiums.

The average cost of a combined buildings and contents policy is �291 and will now increase by �10 a year, according to figures provided by the British Insurance Brokers Association. A typical car insurance policy costs around �300 a year, and this also would increase by �10.

However, those who pay larger premiums � such as older and younger drivers, and those with bigger cars � will face much larger increases. An 18- or 85-year-old could see the cost of their policy hiked by �90 a year.

Although this may seem a small increase to many policyholders, details in the Budget papers reveal how the tax raid will net the Treasury �530million this year, and then �1.4billion in 2016/2017, rising every year to �1.58billion in 2020/21.

Over six years this should net the Treasury �8.16billion.

There was some relief for drivers and homeowners however as the Chancellor launched a probe in to making insurance premiums clearer for policyholders.