The government’s decision on the
new personal injury discount rate continues to receive criticism from the market, with experts warning the industry to brace for a £3 billion bill and a “massive jump” in shopping around.
Insurance market experts at Consumer Intelligence said cutting the discount rate to -0.75% will increase costs for insurers and add up to £100 to motor premiums as new rules on renewal quotes come into effect.
“This is going to cause a massive jump in shopping around as this is the first year that insurers are going to have to be upfront about premium changes,” said Consumer Intelligence chief executive Ian Hughes.
He continued: “Insurers are going to be required to fully explain increases to customers and there will be nowhere to hide.”
“Call lengths are likely to increase and scripts will need to change as contact centres could become quickly clogged,” Hughes added. “And the costs of running them will also quickly rise as call lengths increase. Satisfaction levels for both customers and staff will go down.”
‘Kick in the teeth’
In the opinion of brokerage giant Willis Towers Watson, the discount rate cut will cost the industry a material one-off reserve charge of approximately £5.8 billion, while the cost of providing motor insurance would increase by £868 million per annum. Motorists will be required to fund the cost of the compensation change to the tune of between £25 and £65 per policy per year.
“The immediate impact of such an aggressive cut is going to be painful for both drivers and insurers,” said Willis Towers Watson director Stephen Jones. “Reserves for past claims that have not yet been paid will have to rise, while the costs of future claims will also go up.”
Comparison website
money.co.uk commented that the discount rate cut “will make the pain of renewal even worse.”
“This is a real kick in the teeth for households already struggling to cope with so many rising costs. The change will hit some households multiple times but drivers are expected to fare among the worst,” Hannah Maundrell, the website’s editor-in-chief, said in a statement to Insurance Business.
“It’s important that people who suffer life changing injuries aren’t short changed by the system but making innocent parties foot the bill just isn’t right. The powers-that-be seriously need to sort out how they’re funding these costs and how often they’re being reviewed so people aren’t hit by serious hikes with so little notice.”
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