When someone is seriously injured following a road traffic accident and a claim is made on a motor insurance policy for compensation due to the likes of loss of earnings and/or the cost of care a lump sum settlement is agreed. The amount set aside is then used to provide financial support for the injured party sometimes throughout their life. In order to calculate how much is to be set aside the insurance company uses what is often referred to as the Ogden Discount Rate.
For many years, that rate had been set at 2.5% but in March 2017 it was lowered significantly to minus 0.75%. As a result, this meant that insurance companies had to set aside a much larger lump sum. As a result, this may have resulted in some car insurance providers increasing the cost of providing such cover with this being past on to motorists by way of higher premiums.
Following a review, it had been hoped by insurance companies that the rate would be changed to between 0% to 1%. However, it has recently been announced by the Ministry of Justice that the new Personal Injury Discount Rate (PIDR) will be minus 0.25% with this rate coming into effect for claims that have been settled from the 5th August 2019.
This news does not appear to have gone down well with insurance companies and has been criticised by the Association of British Insurers (ABI). There is concern that the decision could lead to an increase in the premiums being charged by motor insurance providers as well as providers of some other types of insurance such as employers liability insurance and public liability insurance. Of course, as mentioned in the previous post, car insurance premiums rose in the second quarter of 2019 so this is something that motorists could do without.
On the 18th July 2019, Huw Evans, Director General of the Association of British Insurers (ABI) wrote to the Rt Hon David Gauke MP, Lord Chancellor and Secretary of State for Justice to express concern at the decision to change the rate to minus 0.25%.
If you are looking to insure a vehicle for the first time or your policy is shortly due for renewal then you may wish to shop around to try to get a competitive deal as there are so many providers of motor insurance here in the UK.