Criticism of the decision to cut the personal injury discount rate has been almost universal over the last month ever since the announcement was made of a cut from 2.5% to -0.75%. Today, however, that impact comes into effect when the new legislation comes into force.
March 20 is the date that the legislation is introduced with a number of insurers already publicly confirming that premiums will rise as a result of the decision.
Now, the Association of British Insurers (ABI), which initially slammed the decision as “crazy”, has gone a step further by warning that there is likely to be three waves of insurance premium increases between now and the beginning of next year.
It warns that if the Government doesn’t make changes and re-examine the rules then there will be further hikes in July and at the beginning of next year.
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It states that: “Many insurers choose to reinsure against large risks, such as catastrophic personal injury claims, which means some of the impact of the recent change will so far have been absorbed by existing reinsurance contracts. But given the size of the discount rate cost impact, these companies will inevitably increase their premiums when that reinsurance is renewed, adding to insurer costs which will inevitably feed through to the premiums insurers have to charge customers.
“Most reinsurance renewals will take place in January 2018, meaning the third wave of increases could well be the largest if a new rate has not been set by then.”
Huw Evans, director general of the ABI, added that the massive rise in insurers’ claims costs comes from a “wholly avoidable decision” by the Lord Chancellor.
“It was based on pressure from claimant lawyers, poor legal advice and an outdated formula that does not reflect the choices available today for a prudent claimant,” he said. “With the public purse hit by £6 billion, the Government consultation cannot come soon enough. We must move urgently to a fair and modern formula for calculating compensation that works for claimants and insurance customers alike.”
Where do you stand on the adjustment to the personal injury discount rate? Was it justifiable? Leave a comment below with your thoughts.
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