Motor insurance premiums in Scotland and Northern Ireland are expected to drop following the Government Actuary’s announcement on the review of the personal injury discount rate (PIDR) for those regions.
The rate, which affects compensation settlements for personal injury claims, will shift from -0.75% to +0.5% in Scotland, and from -1.5% to +0.5% in Northern Ireland.
The Government Actuary’s Department (GAD) oversees the determination of the PIDR for both regions. Under the Damages Act 1996 and subsequent amendments, the Government Actuary is responsible for setting the PIDR using specific parameters.
These include the investment period, tax and investment expense allowances, assumptions on damages inflation, and the structure of a notional investment portfolio.
The PIDR is reviewed every five years by devolved governments and reflects changes in the investment environment. The rate is intended to ensure that compensation recipients can achieve the expected returns from their lump sum investments over their lifetime.
Given the shift in interest rates since 2019, the same returns can now be generated with smaller initial sums.
This change impacts insurance companies’ expected losses, which in turn influences the pricing of motor insurance premiums. Actuaries from PwC estimate that drivers in Scotland could see premiums fall by an average of £60, while drivers in Northern Ireland may see reductions of approximately £90.
According to PwC, there may be further implications for the rest of the UK. With a new PIDR for England and Wales anticipated by January 2025, some insurers may adjust their pricing in advance. Drivers in these regions could potentially see premiums fall by 1% to 2.5%.
Mohammad Khan (pictured above), PwC UK’s head of general insurance, noted that younger drivers, particularly those under 30 who typically face higher premiums, could benefit the most from the reductions.
“This could also be good news for drivers elsewhere in the UK - the motor insurance market is so competitive that some insurers will see this change in Scotland and Northern Ireland as an opportunity to be more competitive and lower prices elsewhere in the UK, pre-empting a rate change in England and Wales expected early next year,” Khan said.
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