Insurers rail against compensation changes
The insurance industry is up in arms after the Ministry of Justice announced changes to personal injury compensation payments.
The changes, which see the discount rate adjusted from 2.5% to -0.75%, are likely to increase the size of lump sum pay outs to ensure that returns over the claimants lifetime meet the awarded compensation.
The discount rate is the calculation which adjusts the lump sum paid to victims of life-changing injuries according to the interest they can expect to earn by investing it.
‘The current legal framework makes clear that claimants must be treated as risk-averse investors, reflecting the fact that they may be financially dependent on this lump sum, often for long periods or the duration of their life,’ the Ministry of Justice said.’
Lord Chancellor and Justice Secretary Elizabeth Truss added, ‘The law is absolutely clear; as Lord Chancellor, I must make sure the right rate is set to compensate claimants. I am clear that this is the only legally acceptable rate I can set.’
In response, Admiral has postponed the publication of its annual results while DLG said last week it wouldn’t release its annual results until after the announcement.
Meanwhile, Huw Evans, director general of the Association of British Insurers, said, ‘Cutting the discount rate to -0.75% from 2.5% 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.’
‘To make such a significant change to the rate using a broken formula is reckless in the extreme, and shows an utter disregard for the impact this will have on consumers, businesses and the wider operation of the insurance market.’
‘We have repeatedly warned the Government that this could lead to very significant price rises, with younger drivers in particular likely to find it much harder to get affordable insurance. It is also a massive own goal that lands the NHS with a likely £1billion hike in compensation bills when it needs it the least.’
‘We need a fairer deal for consumers and claimants. We cannot wait until Easter -the Ministry of Justice must commit to alternatives immediately so changes to the law can be included in the Prison and Courts Bill.’