Ministry to unveil change of plan
U-turn on changes to crash victim payouts
Government ministers have proposed changes to a proposed formula for calculating compensation payments for those who suffer long-term injuries.
The move threatened to hike the cost of motor insurance by £100 and up to £500 for young drivers.
Following pressure from the insurance industry the government has had a re-think.
The Ministry of Justice will outline new draft legislation that would change the way the discount, or Ogden, rate is calculated.
It had intended to reduce the discount rate from 2.5% to minus 0.75%. The Ministry said that if the rate were set today under the new approach, it might end up within the range of 0% to 1%.
Huw Evans, director general of the Association of British Insurers (ABI), said: “This is a welcome reform proposal to deliver a personal injury discount rate that is fairer for claimants, customers and taxpayers alike.
“The reforms would see the discount rate better reflect how claimants actually invest their compensation in reality and will provide a sound basis for setting the rate in the future. If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers.”
Mohammad Khan, UK general insurance leader at PwC, said: “This morning’s announcement by the Ministry of Justice should bring some relief to motorists.
“Premiums had already risen by about £75 on average and about £250 for young drivers following the original discount rate announcement earlier in the year as insurers passed on roughly half of the expected costs caused by the original rate move.
“If this morning’s announcement had not been made, insurers would have been forced to pass on the remaining costs and annual motor insurance premiums would have risen again in November and December by an average of £100 for UK motorists and by between £300 and £500 for young drivers. It may even have been a little more in Scotland where, in the past, we’ve found insurance premiums in certain regions to be higher than the UK average.
“As a result, today’s announcement, if passed through Parliament, should mean that motor insurance rates remain stable for the next six months. However, if the legislation is not passed, it could mean motorists facing steep premium rate rises early next year. Again, this may mean an equally negative knock-on in Scotland .
“The announcement will also be welcomed by motor insurers, some of who’s results at the half year were adversely affected by Ogden. If passed before the year end, it should bring some relief to motor insurers.”