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Perhaps it’s no surprise that the desks of Insurance Business have been awash with comment since this morning’s personal discount rate cut – and the reaction has been far from favourable.
After the Ogden rate cut surpassed expectations – with the rate slashed from 2.5% to -0.75% - the Association of British Insurers reacted by branding the move “crazy”. However, it has certainly not been alone in decrying the decision.
One of the most notable early reactors has been Admiral, which has taken the decision to postpone the release of its financial results – pushing them back from March 01 to March 08 – on the back of the news so that it can incorporate the rate cut into its figures.
Admiral has stated that the expected total financial impact of the change will be between £140 million and £175 million, and has estimated an impact on its profits of between £70 million to £100 million.
Meanwhile, LV= issued a statement to Insurance Business warning of the impact that the decision is likely to have on younger drivers.
“Today’s announcement risks pricing younger and older drivers off the road,” said Steve Treloar, managing director of general insurance at LV= “The change to the discount rate will significantly increase the cost of the largest personal injury claims and disproportionately hit the premiums of those most likely to cause them – younger and older drivers.
“At a time when car insurance costs are rising anyway as result of fraudulent whiplash claims and successive increases to Insurance Premium Tax, this will hit drivers’ already squeezed wallets hard.”
Treloar went on to state that the method used by the Ministry of Justice is “obsolete” and “in need of reform”.
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Meanwhile, Mohammed Khan, UK general insurance leader at PwC, pinpointed the cost impact for motorists.
“As a direct result of this change, we anticipate an increase of £50-£75 on an average comprehensive motor insurance policy, with higher increases for younger and older drivers – potentially up to £1,000 for younger drivers (18-22 year olds) and a rise of up to £300 for older drivers (over 65 years old),” he explained.
“This announcement, on top of the recent increases in insurance premium tax, will make redundant any savings to premiums as a result of the government’s personal injury legal reforms which were anticipated to generate approximately £40 saving per motor insurance policy.”
In addition, Khan highlighted that the drop to -0.75% was much lower than expected and that catching insurers off guard could have a serious impact.
“As has already been announced by a few companies, some insurers had provided for a discount rate move to 1.5% or 1%,” he said. “The announcement of a move to -0.75% means many insurers will need to further increase their reserves, potentially impacting expected results for year-end 2017 for those who have already announced their results and year-end 2016 for those that have still to report.
“The announcement will also impact reinsurance pricing by pushing prices up for motor and liability reinsurance cover. This may impact the business models of companies that rely on low layers of reinsurance who will be faced with much higher costs of doing business after they renew their reinsurance.”
In legal circles, meanwhile, the news appears to have been greeted with a more mixed response.
“The new rate is undoubtedly a positive thing for claimants, with compensation set to rise considerably following a successful case,” said Daniel Frieze, barrister and head of personal injury at St John’s Buildings.
“However, with claims now worth a lot more, the result of a successful claim leaves potential losses at up to double their previous amount. As a result, these changes also act as a benefit to insurers to argue for the implementation of fixed costs, which the government has already heavily championed in recent weeks.”
What is your reaction to this morning’s decision? Leave a comment below with your thoughts.
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