The announcement wasn’t expected until later this week – but instead it’s the Monday morning blues for insurers as the UK government revealed its decision on the Ogden personal discount rate.
To the shock of many, the rate has been slashed from 2.5% to -0.75% - a much deeper reduction than the bulk of the industry had been predicting, with the Association of British Insurers (ABI) previously issuing a warning about the rate being cut to minus 0.5% just this weekend.
The new rate will come into effect from March 20 with Lord Chancellor Liz Truss issuing a statement this morning outlining that: “There will clearly be significant implications across the public and private sector.”
The ABI has already reacted with anger to the decision, issuing a statement to Insurance Business in which the move was described as “crazy”.
“Cutting the discount rate to -0.75% from 2.5% is a crazy decision by Liz Truss,” said Huw Evans, director general of the ABI in the statement.
“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 estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.
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“To make such a significant change to the rate using a broken formula is reckless in the extreme, and shows an utter disregard for the impact this will have on consumers, businesses and the wider operation of the insurance market.”
He went on to state that the move could lead to “very significant price rises” and that younger drivers in particular are likely to be impacted; while also warning that the NHS could face a “£1 billion hike in compensation bills.”
The new figure may not be static for long, however, with the government to review the framework with a consultation before Easter. It is expected to consider options for reform including whether there should be more frequent reviews and whether the rate should be set by an independent body.
However, this was not enough to satisfy Evans.
“We need a fairer deal for consumers and claimants,” he concluded. “We cannot wait until Easter - the Ministry of Justice must commit to alternatives immediately so changes to the law can be included in the Prison and Courts Bill.”
What is your reaction to this morning’s decision? Leave a comment below with your thoughts.
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