by constructaquote - 28 February 2017
The Ministry of Justice announced yesterday that a new formula would be used for calculating compensation payments for those who suffer long-term injuries as a result of a vehicle incident.
Industry experts have suggested that, due to a new government ruling, average comprehensive motor insurance premiums could increase by up to £75 a year.
Justice secretary Liz Truss announced that the new changes to the way lump sum payouts are calculated will see those affected by medical negligence, car crashes and other incidents get more money.
But the move will put increasing pressure on insurers, the NHS and other public bodies responsible for paying out the increased claims causing shares in insurance companies to fall with many claiming that millions of pounds worth of profits will be affected.
The increased costs to insurers will have a knock on effect for drivers and small businesses causing their premiums to increase.
Mohammad Khan, UK general insurance leader at PwC said:
“Unfortunately, this announcement will have a significant adverse impact on motor insurance prices that drivers pay and also commercial insurance rates paid by small businesses.”
The change is predicted to see an increase of £50-£75 on an average comprehensive motor insurance policy, with higher increases for younger and older drivers. Older drivers (aged 65+) could see a £300 annual increase with younger drivers (18-22 year olds) potentially with an increase of up to £1,000.
Although the Association of British Insurers (ABI) called the decision “crazy”, The Ministry of Justice said that under the current law it had no choice and would consult on possible changes.
The new formula is due to take effect from 20th March 2017.
Huw Evans, director-general of the Association of British Insurers (ABI) said:
“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.”
The Ministry of Justice will now launch a consultation on how the system can be made fairer claiming it would bring forward any necessary legislation “at an early stage”.
For now, it’s been made clear that there was no choice but to change the discount rate.
“The law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants,” said Liz Truss, the Lord Chancellor and Justice Secretary.
“I am clear that this is the only legally acceptable rate I can set.”
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