Car insurance rise re-think

A MAJOR review was launched yesterday into a controversial personal injury compensation scheme amid anger that it is penalising millions of drivers.

Liz Truss acted after a backlash over the new formula for calculating payouts for victims which added up £300 to the premiums of older drivers.

The Justice Secretary has insisted she will not reverse the measure in the short-term but said she wanted to be sure the system was ‘fair to consumers, business and taxpayers’.

Miss Truss, who is also Lord Chancellor, was forced to act following fury that the changes taking effect last week had pushed up costs for motorists and the NHS. Experts also warned her that firms faced large rises in their public and employer liability premiums.

The row centred on a change to the ‘discount rate’ used to work out how much insurers should pay to victims of major accidents. Courts calculate compensation based on loss of earnings and the cost of care.

But they also adjust the lump sum payout to take account of the interest which victims with ‘catastrophic’ injuries are likely to earn over time.

Miss Truss cut the rate from 2.5 per cent to minus 0.75 per cent as it is linked to Government gilts which are paying out negative returns. Officials defended the decision, saying it would give victims with lifechanging injuries a better deal.

Under proposals unveiled as part of the six-week review, an independent body instead of the Lord Chancellor could set the discount rate.

Huw Evans, of the Association of British Insurers, said: ‘The Government has moved swiftly to consider reform.’