UK government promises legislation to reduce motor premium
Legislation will be introduced to modernise the courts system and to help reduce motor insurance premiums, according to the Queen's Speech 2017 held today (June 21) to both Houses of Parliament.
Motor premium rates in the UK were already at record highs in the first quarter of 2017 (£462), according to the Association of British Insurers premium rate tracker. However, rising reinsurance and claims costs due to the new Ogden rate, high repair cost inflation and the rise in insurance premium tax to 12 percent could cause consumer rates to increase by a further 9.0 percent in 2017 to £503, according to advisory firm EY.
In February, the Lord Chancellor decided to change the Ogden discount rate to -0.75 percent from 2.5 percent.
The so-called Ogden tables detail figures to be used to multiply the annual cost of a damage to be awarded in serious personal injuries cases.
The change in the UK’s personal injury Ogden discount rate is estimated to cost to insurers and reinsurers at £3.5 billion across all lines of business, EY predicts.
The UK’s Chancellor Philip Hammond has agreed to a consultation on the framework for setting future personal injury (Ogden) rates.
“The insurance industry is highly supportive of any attempt to reduce motor insurance premiums by combatting compensation culture, but bitter experience has taught it that this can be a rather like playing the arcade game Whac-A-Mole,” Mark Hemsted, partner at law firm Clyde & Co, commented.
“If you hit the problem in one place, it tends to pop up in another. Addressing issues in the court system will also help reduce costs and make the process of settling claims faster. With regard to the practicalities, this government has an awful lot on its agenda so it’s hard not to see the potential for this legislation to slip down the running order. Insurers will need to be vocal in their support if they want to ensure these measures maintain momentum.”
A civil liability bill is expected to tighten the rules on whiplash claims, and the government says this could save motorists £35 a year through cheaper car insurance as a result.
Mohammad Khan, general insurance leader at PwC, said: "Today's news on whiplash claims is good news for motorists. This will ensure that genuine claimants get paid fairly but exaggerated claims will be reduced. This could save motorists an average of £35 - £40 per motor insurance policy. The savings from this measure will help mitigate some of the recent increases due to the Ogden discount rate change.
"Insurers were expecting some further details on the Ogden discount rate consultation, and although there was no explicit mention of it today, it may be included within the Civil Liability bill. We should find this out within the next two weeks.
Khan noted that an update on the Ogden rate is important for motorists as the average motor insurance premium has already increased by between £25 and £50, and by about £100-£200 for younger drivers.
"Many insurers have not yet factored the Ogden discount rate change into the price of their premiums as they had assumed that the government consultation would change the methodology to mitigate the full impact.
"The worry for motorists would be if the government decides not to revisit the Ogden discount rate methodology in this Parliament, meaning premiums will have to continue to rise next year. If we applied the current methodology for estimating the Ogden discount rate, the rate would move to -1.75 percent next year. This would further increase motor insurance premiums by approximately £50 - £100 and by approximately £200 - £500 for younger drivers."
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