CAR INSURANCE TO SOAR AGAIN

Drivers face hike in premiums of up to £250, warns industry

DRIVERS face spending up to £250 more on their car insurance after a major change to compensation rules, industry bosses warned last night.

Regulations covering payouts for victims of serious accidents have been altered after heavy lobbying from law firms looking to boost their income.

Insurers must now hand over more cash to people who suffer significant injuries – and have been forced to hike premiums to pay for it.

car insurer Admiral yesterday admitted this is set to cost the average motorist up to £60 extra a year – with young drivers likely to face a £250 increase in premiums.

It piles pressure on ministers to abandon the new rules, which have been branded ‘unnecessarily extreme’ by Admiral chief executive David Stevens.

Young motorists will be particularly hard hit because they are statistically more likely to have a crash, so face higher premiums to begin with.

Mr Stevens said: ‘The change will cost £50 to £60 for the average motorist. They have probably seen £30 of that already,

with another £20 to go. If you’re a young driver, you’re in a very different situation... maybe a rise of £250, where you’ve had £150 with another £100 to go.’

The rules stem from changes in February to the so-called Ogden discount rate.

Victims of serious accidents are typically paid a multimillion-pound lump sum to support them for the rest of their lives. This is normally invested in low-risk Government bonds and they live off the proceeds.

The discount rate is meant to take into account that the investments will grow in value, meaning insurers do not need to pay out as much up front.

But record low interest rates introduced by the Bank of England mean returns are now extremely poor. As a result, lobbyists for the law firms which profit from representing victims convinced the Ministry of Justice to slash the Ogden rate from 2.5 per cent to -0.75 per cent – meaning insurers must pay out far more than before.

Admiral said the changes had cost the company around £105million.

Towards the end of the year, the reinsurers which back the company and other car insurers will increase their charges to take the Ogden movement into account.

Unless ministers act soon, it means even more pain for motorists as that cost gets passed on.

Admiral and the rest of the industry is calling for a new way of calculating compensation which punishes motorists less harshly while still ensuring victims get what they need. Mr Stevens said: ‘The change the Government made was unnecessarily extreme.

‘It didn’t reflect how people actually invest long-term lump sums to cover future costs.

‘The Government should move to a halfway house between the old system in need of reform and the -0.75 per cent announced.’

He added it was particularly important because the rate was ‘focused on younger drivers paying higher premiums’ who ‘need a car sometimes to access education and to access work’.

A decision on reforming Ogden was due this month but has been postponed.

The Association of British Insurers said: ‘Reforming the discount rate is such a vital issue for taxpayers, customers and claimants, so it is important the Government gets it right, even if this takes a few more weeks.

‘The current system is clearly broken and we will continue to work closely with the Government and Parliament to find a solution that works for claimants, taxpayers and customers.’

The Ministry of Justice said: ‘We have consulted on whether there is a better or fairer framework for claimants and defendants in cases of serious personal injury.

‘We will respond to the consultation in due course.’

Admiral revealed profits of £193million in the first half of this year, up 2 per cent on the same period last year.

Customer numbers climbed 13 per cent to 5.5million and the firm upped its dividend by 10 per cent to 56p per share.

Admiral made £22.4million by charging interest to drivers who pay premiums monthly – a rise of 46 per cent.

This so-called instalment income penalises elderly and young drivers, who are most likely to spread payments out as they tend to have higher premiums and less money than middle-aged workers.

‘System is clearly broken’