Young drivers could see their car insurance premiums soar by up to £1,000 as a result of changes to personal injury payouts made by the Government.
Experts predict the changes will add £75 to the price of an average insurance policy, with drivers aged 65 in line to pay an extra £300 for insurance, and young drivers losing out by up to £1,000.
The Ministry of Justice has announced it would cut the lump-sum compensation payout discount rate from 2.5 per cent to a -0.75 per cent. When accident victims are given large compensation payments by insurers, the sum is adjusted to take into account the extra interest they could earn from investing it. The new, -0.75 per cent rate will apply from 20 March onwards, and will mean insurers will end up paying more for compensation claims, which in turn increases premiums for motorists.
The Association of British Insurers (ABI) labelled the move “crazy”. It said: ”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.”
The ABI added that the changes will hit drivers most commonly involved in accidents that result in injury payouts, namely young and old drivers.
• Car insurance prices hit record high levels
Mohammad Khan, UK general insurance leader at accountancy PwC, said the move was “not anticipated by the insurance industry.” He added: “As a direct result of this change, 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 (18-22 year olds) and a rise of up to £300 for older drivers (over 65 years old).
"This announcement, on top of the recent increases in insurance premium tax, will make redundant any savings to premiums as a result of the Government’s personal injury legal reforms which were anticipated to generate approximately £40 saving per motor insurance policy."
The ABI pointed out that it’s not just insurers and motorists looking to lose out, but also institutions like the NHS, who will likely face a “£1 billion hike in compensation bills when it needs it the least.”
• Cheap car insurance for young drivers: top tips
The MoJ said the reason it decided to cut the rate was because the old formula, used since 2001, was based on interest obtained from investing in Government bonds.
But when inflation is taken into account, the returns from the bonds would have been negative, so it had to adjust the rate so that: “Compensation awards using the rate should put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs.”
Do you agree with the changes made by the Government? Tell us in the comments below...
from Featured Articles http://bit.ly/2lXC2rF
This comment has been removed by the author.
ReplyDeleteI really appreciate the work you have done, you explained everything in such an amazing and simple way.
ReplyDeleteMotor Insurance Company In India
Thank you for sharing such great information. It was very informative and has helped me in finding out more detail.
ReplyDeletebest health insurance company in india
Thank you for sharing such great information. It was very informative and has helped me in finding out more detail.
ReplyDeleteMotor Insurance Company In India