Compensation Changes Leads to Increase In Car Insurance Premiums

 

According to industry experts, the average car insurance premium could see a rise of up to &75 a year as a result of a government ruling.

The UK government has recently announced a change to the formula used to calculate compensation payments and the change will affect the financial awards given to victims of car crashes.

The Ministry of Justice has stated that it had no choice but to make the change under the current law and may consult on possible changes.

What’s changing?

Accident victims currently receive compensation that is paid in a single lump sum, which is reduced in accordance with the interest they can expect to earn by investing it.

In finalising the compensation amount, courts apply a discount rate, which for the last 16 years has been 2.5%, making the payout that much smaller.

The Ministry of Justice has decided that the discount rate will be cut from 2.5% to 0.75%, effective from the 20th March. This change means that the victim of an accident will receive more money, but it will result in a higher cost for the insurer.

The change in discount rate is expected to have quite the impact on the insurance industry with some insurance experts labelling the move as “crazy”

Director General of the Association of British Insurers, Huw Evans, offered his opinion on the decision, he said “Cutting the discount rate to minus 0.75pc from 2.5pc is a crazy decision by Liz Truss.

“Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK.

“We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.”

Experts are predicting rises from &50 all the way up to &1000 for younger drives. Mohammad Khan, UK general Insurance Leader at accountancy firm PwC said “We anticipate an increase of &50-&75 on an average comprehensive motor insurance policy, with higher increases for younger and older drivers - potentially up to &1,000 for younger drivers, and a rise of up to &300 for older drivers”

<< News