Increased personal injury payments – a moving picture

A subsequent meeting was held between Liz Truss and representatives of RSA, Aviva, Direct Line and the head of the Association of British Insurers (ABI). This has led to the issue being reviewed as a matter of urgency by the Government but as yet it is unclear exactly what form the new legislation will take.

What is at issue is a proposed change to the way personal injury payments will be calculated. The Chancellor’s initial proposal was for a recalculation of the Ogden discount rate on personal injury claims which will lead to significantly higher payments to claimants. In turn, this would lead to significant increases in motor insurance premiums and this is where the controversy lies.

At the moment, it is a question of awaiting the result of the review process. It appears likely, however, that monies will be put aside by insurers to cover the additional cost although there seems to be no consensus so far on the exact implications for rates for commercial liability risks. Another issue is that a significant rate change will undoubtedly test the resolve of those motor insurers who are trading on minimal margin and with bare minimum capacity. With three exits in the last few months, it would not be surprising to see more insurer collapses following an announcement, making it more critical than ever for brokers to consider carriers with the guarantee of a strong credit rating.

How the change in rates affects personal injury payments

The table available on the link below is for personal injury payments based on an individual aged 30 who earned £25,000 a year prior to an accident which prevented him returning to employment. His nursing costs are currently £75,000 a year. The figures quoted illustrate the amount paid by insurers under the previous Ogden discount rate of 2.5% compared to the proposed amendment to -0.75%.

Cost of change in discount rate

If the proposed change went ahead it would mean an increase of 127% which insurers would have to cover. We will keep up to date with the progress of this legislation and report on the implications once they are known.

If the proposed change went ahead it would mean an increase of 127% which insurers would have to cover. We will keep up to date with the progress of this legislation and report on the implications once they are known.