‘Crazy’ new rules to drive up the cost of car insurance by £100
MILLIONS of motorists will have to pay up to £100 a year more for insurance because of a “crazy” change to compensation rules, experts claimed yesterday.
Young drivers could see premiums rise by up to £1,000.
The insurance industry warned that compensation payouts will also soar, potentially damaging the NHS, following a decision by Lord Chancellor Liz Truss.
Courts award payouts based on the interest an injured party can expect to earn from investing the money. The so-called Ogden Discount Rate treats them as riskaverse investors.
But yesterday Ms Truss reduced the rate from 2.5 per cent to minus 0.75 per cent which critics say will force payouts up to cover reduced earnings. This will force up premiums to cover the costs of higher payouts.
Reckless
Huw Evans, director general of the Association of British Insurers, branded the move “reckless”.
He said: “Cutting the discount rate is a crazy decision. Claim costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses.
“We estimate that up to 36 million individual and business motor insurance policies could be affected to over-compensate a few thousand claimants a year.
“We have repeatedly warned the Government that this could lead to very significant price rises, with younger drivers likely to find it much harder to get affordable insurance. It also lands the NHS with a likely £1billion increase in compensation bills.”
A rise of this magnitude would represent a 66 per cent increase in NHS payouts.
Even before this change the NHS’s clinical negligence costs in England rose to £1.5billion in the past financial year from £1.2billion in 2014/’15.
Simon McCulloch, from the website comparethemarket.com said: “Motorists will feel the effects through sharp increases to their premiums. Premiums could increase on average by almost £60.
“However, those that can probably least afford it will be hit hardest. Young drivers – who are already spending 2.5 times more than the average policyholder for car insurance – are likely to have their premiums increased by around £107.
“The concern is that the discount rate change will see much of the money move from the pockets of motorists to those of personal injury lawyers, who campaigned for this change.”
Ms Truss said: “The law is clear – as Lord Chancellor I must make sure the right rate is set to compensate claimants. This is the only legally acceptable rate I can set.”
The discount rate has been unchanged since 2001.