Car insurance bills to soar for 36m drivers
Over-65s face £300 hike Shake-up to cost NHS £1bn
OLDER drivers face motor insurance rises of up to £300 a year after a Government ruling to boost personal injury compensation, experts warned last night.
In a move branded ‘crazy’ by the insurance industry, Justice Secretary Liz Truss announced a new formula for calculating compensation which will lead to bigger payouts for those who suffer serious long-term injuries.
The Association of British Insurers (ABI) warned that up to 36 million individuals and businesses will see their motor insurance premiums go up to pay for the changes.
And the NHS faces a £1 billion jump in its annual compensation bill for clinical negligence claims.
Insurance premiums have risen even before the changes – going up by 4.9 per cent in the past three months of 2016 and adding £22 to the average fee.
The Ministry of Justice yesterday said it had no choice under current law, and said it was looking at more fundamental reforms to the way compensation is calculated.
But last night one senior Tory MP warned the Government’s decision had ‘a look of absurdity’, and said it would cause people’s insurance premiums to rise while hitting the public finances.
There are also concerns that the reforms could lead to bigger profits for personal injury lawyers. Simon McCulloch, of comparethemarket.com, said: ‘The concern is that the discount rate change will see much of the money move from the pockets of motorists and into those of personal injury lawyers, who campaigned for it.’ The row centres around a discount rate for compensations, which is set by Miss Truss.
The rate determines how much money insurers can shave off a payout to account for how much the claimant could earn by investing the lump sum. The lower this is, the more money accident victims get.
It currently stands at 2.5 per cent – but Miss Truss is putting it down to minus 0.75 per cent.
Analysts have predicted the changes will cost the insurance industry more than £5 billion.
Shares in insurance companies fell sharply on the announcement, with Direct Line slumping more than 7 per cent. But the ABI made it clear it would be customers that ultimately pay the price.
Accountancy firm PWC yesterday predicted the cost of the average comprehensive motor insurance policy would rise by £50 to £75. Older drivers could see their annual insurance bills jump by £300 and young drivers could be forced to pay up to £1,000 more. In
‘This is a crazy decision’
an extraordinary personal attack on the Justice Secretary, Huw Evans, director-general of the ABI, said: ‘Cutting the discount rate is a crazy decision by Liz Truss.
‘Claim 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. To make such a significant change to the rate using a broken formula is reckless in the extreme.’
Insurers warned that millions of firms will also see the cost of their employer liability insurance go up. These policies, which are compulsory, pay out if an employee suffers a serious injury at work. Opposition MPs described the Government’s decision as a blow to small firms and cash-strapped households, previously labelled the ‘Just About Managing’.
Liberal Democrat leader Tim Farron said: ‘The “Just About Managing” have been slapped with a further tax hike by this Government. It makes a mockery of Theresa May’s claim that she wants to stick up for the poor in society.’ Miss Truss said her hands were tied, adding: ‘The law is absolutely clear – 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.’
Referring to the predicted £1 billion annual increase in NHS compensation payouts, Mrs May’s spokesman said: ‘The Government will make sure the NHS has the appropriate funding.’