Discount rate cut to cost insurers £2 billion a year, public body says

Insurers and the government’s finances will each take a 10-figure hit as a result of the Ministry of Justice’s decision to cut the personal injury discount rate, according to a public body and an industry lobby group.

 

In his first budget speech on Wednesday, Chancellor Philip Hammond revealed that the government has set aside £5.9 billion to protect the publicly-funded National Health Service (NHS) from the effects of the changed discount rate.

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“The Chancellor has set aside about £1.2 billion a year to meet the cost to the NHS and other parts of the public sector,” said Robert Chote, chairman of the Office for Budget Responsibility (OBR), which released figures alongside the Spring Budget.

 

“The decision is also expected to cost insurers about £2 billion a year, which will push up premiums,” Chote added.

 

The Association of British Insurers (ABI) said the budget “confirms a massive £6 billion hit to the NHS” caused by the adjustment of the discount rate.

 

“This extraordinary bill for taxpayers – bigger than any other in this budget – shows how absurd this avoidable decision was,” said ABI director general Huw Evans.

 

“The OBR has also confirmed today that this will lead to higher inflation for years to come as the effects of such a massive increase in claims costs are felt by customers,” Evans went on saying. “This makes it even more urgent that the Government deliver a fair deal for consumers and claimants by bringing forward changes to the law this year.”

 

Lord Chancellor Liz Truss announced last week that the discount rate will be reduced from 2.5% to -0.75%, sparking outrage among insurers.

 

Insurance CEOs met with Hammond and urged him stop the new rate cut. According to Evans, the Chancellor personally committed to address the issue.