Up to 36 million motor insurance policies could be affected and premiums for motorcyclists are likely to go up by as much as 15% within the next 28 days. The Government’s decision has been branded as “reckless” by the insurance industry.
A change to the law regarding personal injury compensation payouts means that British motorcyclists are facing increased insurance premiums.
While the system of awarding a lump sum of compensation to successful claimants remains, changes to what is known as the ‘discount rate’ will mean that the amount claimants receive from insurance companies will be greater.
The formula used to work out compensation takes into account the fact that the cash will be required to support the victims for the rest of their lives. But currently the courts rule that the final amount received is reduced by the discount rate, which is currently 2.5%, to take into account the fact that the lump sum will attract interest payments over the years.
However, with interest rates having run at a historic low for many years, Lord Chancellor Liz Truss has opted to revise this adjustment and is setting it at -0.75% from 20 March, meaning that payouts to claimants will increase.
While this is good news for the individuals who suffer serious personal injuries in motor accidents each year, the insurance industry says that the knock on effects will be felt by motorists across the country, with premiums set to rise for all in order to cover the additional cost of payouts.
Huw Evans, Director General of the Association of British Insurers (ABI), is unimpressed by the Government’s decision, branding it ‘reckless’ and saying that young road users could be worst hit. He said: “Cutting the discount rate to -0.75% from 2.5% is a crazy decision by Liz Truss. Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK. We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.
“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 £1billion hike in compensation bills when it needs it the least. “It is important that going forward, personal injury discount rates are set at a level that is fair to both claimants and consumers.
“The Government will progress urgently with a consultation on the framework for setting future rates, and bring forward any necessary legislation at an early stage. “The industry will contribute fully to the upcoming consultation, and the Government will carefully consider all evidence and arguments submitted.”
Speaking to BikeSocial, Brady Hoines, Head of Commercial at specialist bike insurer Bennetts, added: “The impact for consumers is that premiums for motorcyclists are likely to go up, in some areas by as much as 15%, within the next 28 days. There will be no additional charges for riders currently insured, but many are likely to see premiums go up if they are shopping around.
“As a broker, we are in constant dialogue with our panel of insurance underwriters to make sure that we are getting the best deal for our customers. Prices will go up, but we will be working hard to make sure that we offer motorcyclists the best possible service and value for money.”
Hoines agreed that younger riders may find it harder to find bike insurance as a result of the discount rate change, suggesting that some insurance providers may look to ‘close their book’ to those whose profile represents an unacceptably high risk. He also reiterated that riders can help reduce their premiums by using approved security products and undertaking advanced rider training, factors which are all taken into account when calculating an insurance premium.