On Monday 27th February 2017, Lord Chancellor and Secretary of State of Justice, Liz Truss, announced that those affected by medical negligence, car crashes and other incidents will receive more money following changes to the way lump sum pay-outs are calculated. This has triggered predictions by insurance experts that premiums could rise dramatically.
The measure relates to a calculation called the Discount Rate, which has remained unchanged since 2001. When victims of life-changing injuries are awarded large sum compensation pay-outs, the actual amount they receive is adjusted according to the interest they can expect to earn if they invested it. In finalising the amount, courts apply the Discount Rate, which was set at 2.5%.
From 20th March 2017, the new Discount Rate has been set at minus 0.75%, which means claimants will now receive larger lump sums, putting pressure on insurers to increase premiums. It is estimated that an average comprehensive motor insurance policy will increase by £50-£75, with increases of up to £1,000 for younger drivers and a rise of up to £300 for drivers over 65.
Insurance premiums for drivers set to rise as the Government revises the injury pay-out scheme.
Top-level representatives from the insurance industry are currently calling for Chancellor Phillip Hammond to make a swift change in the law to stop the change hitting motorists, business and taxpayers before the change becomes reality. As we await reform of the law in this respect, we look at other factors affecting premiums.
- Global economicsThe uncertainty over Brexit has already reduced the strength of the pound, affecting the cost of motor parts manufactured outside the UK. This, in turn, increases the cost of vehicle repair, affecting the premiums needed to cover future motor claims costs.
- Insurance premium tax
Over recent years, the Government has introduced a number of successive increases in insurance premium tax (IPT), directly impacting the amount all customers pay for insurance.
- Cost of running a business
Fluctuations in the exchange rate, reduced returns on investments, increased energy costs and regulatory restrictions all affect running costs, resulting in increased premiums for policies such as Public/Products Liability, property, Motor and Employers’ liability.
- Underwriting profit and loss
Products such as Employers Liability and Public Liability generally run at an underwriting loss, with insurers relying on investment income to generate profits. With falling global interest rates and the Bank of England base rate at an all time low of 0.25%, insurers are under pressure to make an underwriting profit, resulting in increased premiums.
How to manage premium change
Despite the external factors affecting premiums, insurers always look at customers on an individual basis to ascertain risk level. As your broker, we will help manage your exposure to risk and source quotations via our panel of insurers to find the optimum product, helping to keep your premiums as competitive as possible.