Car insurance premiums could rise by an average of £75 if government plans to change the personal injury discount rate go ahead.
The personal injury discount rate calculates how much money is removed from a victim’s insurance payout following an accident, in order to make up for money made should the money be invested over several years.
According to the Association of British Insurers, Lord Chancellor Liz Truss’s proposal to cut the rate from 2.5% to -0.75% will cause claim costs to soar, leading to “an increase in motor and liability premiums for millions of drivers and businesses across the UK”.
It labelled the change as ‘crazy’ and said that 36 million individuals and businesses could be affected.
ABI director Huw Evans said, “To make such a significant change to the rate using a broken formula is reckless in the extreme, and shows an utter disregard for the impact this will have on consumers, businesses and the wider operation of the insurance market.
“We have repeatedly warned the Government that this could lead to very significant price rises, with younger drivers, in particular, likely to find it much harder to get affordable insurance. It is also a massive own goal that lands the NHS with a likely £1 billion hike in compensation bills when it needs it the least.”
British drivers are already facing growing insurance premiums that recently reached a four-year high thanks to rising repair costs, uninsured drivers and excess whiplash claims. The AA’s British Insurance Premium Index also showed that typical premium quotes rose by 3.7% through the middle of last year, with premiums up by an average of £82 on 2015.
Evans said the further increase in premiums needed to be addressed quickly. He added “We need a fairer deal for consumers and claimants. We cannot wait until Easter - the Ministry of Justice must commit to alternatives immediately so changes to the law can be included in the Prison and Courts Bill.”