Ahead of the Lord Chancellor’s highly awaited announcement later this week, the Association of British Insurers (ABI) has warned that the expected change to the discount rate could increase insurance premiums for millions of customers.
The discount rate is a figure used to calculate lump sum payments for people who suffer a severe personal injury, taking into account what return they are likely to receive when the sum is invested.
“This is an unnecessary review being carried out using a broken and outdated formula that does not reflect how claimants actually invest the money they receive,” said ABI director general Huw Evans.
“Millions of customers could see their premiums increase unnecessarily if Liz Truss continues down this path,” he added.
Last week, brokerage giant Willis Towers Watson also warned that the industry could be negatively affected by the proposed changes to the discount rate, which the company called a “pressure cooker waiting to blow.”
The company warned that adjusting the discount rate to negative 0.5% could result in a £700 million annual increase in the cost of providing motor insurance. Reinsurers will be particularly affected, but UK motorists will be required to fund the cost of the discount rate change by paying from £20 to £55 per policy per year.
What’s going on with the personal injury discount rate?