Premiums to leap as insurance rules change

Motor insurance premiums could also jump £1,000 a year to cover costs of rising compensation fees

The NHS is facing a £1 billion bill and car insurance premiums could leap by up to a £1,000 a year after the Government announced changes to personal injury payout calculations. Both the public and private sector will be hit because payouts to claimants will rise sharply this year. The Treasury will cover the cost to the NHS. Car insurance premiums are also expected to rise in order to cover the extra cost of payouts to those who are injured on the roads.

THE NHS is facing a £1 billion bill and car insurance premiums could leap by up to a £1,000 a year after the Government announced changes to personal injury payout calculations.

Both the public and private sector will suffer a “significant” financial hit, Liz Truss, the Lord Chancellor, admitted, because payouts to claimants will rise sharply this year.

The Treasury will cover the more than £1 billion cost to the NHS but La- bour said the money should be spent on social care. Car insurance premiums are also expected to rise in order to cover the extra cost of payouts to those who are injured on British roads.

A senior Tory MP said the changes meant motorists are being used as a “cash cow”, while the industry body called them “reckless in the extreme”.

Young drivers could see their premiums increase by £1,000 a year, while drivers older than 65 could be forced to pay £300 more, according to the accountancy firm PwC. On average, drivers with comprehensive policies could be forced to hand over between £50 to £75 more a year to cover the increased personal injury payouts.

Mohammad Khan, UK general insurance leader at PwC, said: “This announcement, on top of the recent increases in insurance premium tax, will make redundant any savings to premiums as a result of the Government’s personal injury legal reforms, which were anticipated to save approximately £40 per motor insurance policy.”

Insurance industry shares fell sharply after the news yesterday. Philip Hammond, the Chancellor, will meet with the sector in the coming weeks.

Huw Evans, director general of the Association of British Insurers, called the decision “crazy”. He added: “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 have repeatedly warned the Government that this could lead to very significant price rises. 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.” Jonathan Ashworth, Labour’s shadow health secretary, said the Government should fund social care properly.

He told The Daily Telegraph: “The NHS is going though the biggest financial squeeze in history, social care is in crisis and needs proper resourcing.

“Patients and their families will expect to see the NHS and social care given the funding it needs and if the Government is able to underwrite Liz Truss’s £1 billion bill for the NHS then surely they can find the funding social care needs too.”

NHS negligence claims cost the health service £1.5 billion last year.

When victims of life-changing injuries accept compensation payments, the actual amount they receive is adjusted according to the interest they can expect to earn by investing it to ensure the payout is not eroded by infla- tion in the future. From March 20, this discount rate will fall from 2.5 per cent to minus 0.75 per cent, meaning public and private bodies will be forced to pay more to claimants, rather than clawing some of the award back.

It comes just months after the Chancellor increased bills by raising insurance premium tax from 10 to 12 per cent, due to take effect this June.

The Treasury will net an additional £250 million this year as a result of the two policies combined, industry experts calculate.

Announcing the change to the discount rate, Ms Truss said: “As Lord Chancellor, I must make sure the right rate is set to compensate claimants. I am clear that this is the only legally acceptable rate I can set.” Business: Page 1