Insurance tax hits a wide target: Estimate of an extra pounds 18 a year from consumers ignores impact on many types of common cover

THE AVERAGE cost of the new 3 per cent insurance tax will be 35 pence a week for a 'typical' family with motor, home contents and building cover, according to Kenneth Clarke.

But the overall bill is likely to be higher than the predicted pounds 18.20 a year, because the tax affects a lot of other cover usually taken out by consumers.

The insurance premium tax will bear on travel policies, warranties on electrical goods, private medical insurance, mortgage indemnity, personal liability and accident cover, and even membership of motoring organisations.

A family taking out household and contents cover for a three-bedroom, semi-detached house in Wolverhampton, with premiums of pounds 355 through Eagle Star or pounds 349 with Norwich Union, will pay around pounds 10.50 more.

Costs will differ according to where people live. A one- bedroom flat, part of an apartment block in Hampstead, north-west London, would cost about pounds 613 to insure through Eagle Star or pounds 415 with Norwich Union.

The new insurance levy would cost between pounds 12 and pounds 18 a year for the property cover alone.

Car insurance is similar. A 42-year-old Glasgow midwife pays about pounds 260 for comprehensive cover on her F-registered 1,200cc Vauxhall Nova with Frizzell, and would pay pounds 144 through Eagle Star. Her tax bill would range between pounds 4.50 and pounds 8 a year.

An advertising executive aged 23, with one speeding conviction and living in Stamford Hill, north London, pays about pounds 1,070 with Frizzell for fully comprehensive cover on his E- registered 1,300cc VW Golf. Norwich Union charges pounds 2,000 for the same cover. The new tax would add between pounds 33 and pounds 66 a year.

Insurance companies claim there will be additional hidden costs - running into millions of pounds - involved in setting up the systems needed to administer the new levy. They fear some of those costs may have to be paid by consumers.

Some insurers will try to absorb them. A spokeswoman for Prudential said premiums would not rise for its 2 million customers with household insurance. 'Over the past 18 months, we have reduced premium rates and are confident that further planned improvements in efficiency should enable us to absorb the cost of the tax,' she said.

Frizzell, based in Bournemouth, said it would incorporate administration costs for its 600,000 customers but was not sure about the tax. General Accident will pass on the tax but not the cost of collecting it. Eagle Star, along with the Automobile Association and Sun Alliance, said no decision had yet been taken.

However, David Prosser, group chief executive of Legal & General, said his company was unable to absorb the costs.

Norwich Union, which has about 2 million household and motor insurance policyholders, is also unlikely to follow the Pru's lead. Patrick Smith, a manager with the Norwich, said it might cost several million pounds to set up a system to collect the tax and about pounds 1m a year to administer it.

Consumers will face additional bills whenever they take out travel insurance. A week in the US will cost about pounds 1.20 per person in extra charges, or 75p each week for a fortnight in Europe.

A spokeswoman for the jointly owned Dixons and Currys electrical chains said warranty cover currently stands at pounds 149 over five years for a washing machine, pounds 110 for a 21-inch colour TV, or pounds 138 for a video recorder. Spread over a typical five-year replacement period, the tax on all three items will be about pounds 2.50 a year.

House buyers, who currently move home every seven years on average, also face higher mortgage indemnity bills. Nigel Grinsted, of the insurance advisers Special Risk Services, said the average one-off premium of pounds 1,000 for a pounds 50,000 mortgage will cost an extra pounds 30.

Membership of motoring organisations will also cost more. A couple with joint membership of the AA, using its Super Relay and Homestart services, will pay pounds 2.90 on top of the pounds 97 annual charge.

Bupa, the health insurer, said its most popular private medical scheme costs a couple, aged 35 to 39, with two children, about pounds 840 a year. The new tax will add a further pounds 25.

Alan Ainsworth, the company's marketing director, said: 'This tax does appear to be counter-productive. It will deter some people from joining. If the Government's objective is of helping NHS resources to go further, there is a need for more incentives for medical insurance, not less.'