The International Underwriting Association (IUA) is calling for a review of the UK personal injury discount rate following its recent reduction by the government which received a widespread backlash from the insurance industry.
In a letter to the Lord Chancellor, the IUA called for legislation to establish a new methodology for how courts determine personal injury settlements.
“It is clear that the process to review and amend the discount rate is flawed. Furthermore, the assumptions used to set the rate are completely out of step with current investment practices,” said IUA chief executive Dave Matcham.
Matcham believes that the sooner changes are made, the better for the efficient operation of the insurance market.
The government previously decreased the discount rate from 2.5% to -0.75%, which was beyond the industry’s expectations. The IUA said this will significantly increase company reserves, raise customer premiums and lead to more uninsured drivers.
“The effect of the recent, unprecedented rate change was immediate and we have already seen sizeable increases in premium rates,” Matcham said. “Companies currently have little option, but to set their reserves according to the new rate and this could lead to a substantial reduction in reinsurance capacity.”
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