The UK government has announced a significant update to the personal injury discount rate, which is set to affect motor insurance premiums and compensation calculations across England and Wales.
The change, effective from January 11, 2025, was confirmed by Shabana Mahmood (pictured(, Lord Chancellor, in a statement outlining the results of the latest statutory review mandated under the Damages Act 1996.
The discount rate, which impacts lump sum compensation awards for future financial losses in personal injury cases, will rise from -0.25% to +0.5%. This adjustment aligns England and Wales with recent rate changes in Scotland and Northern Ireland.
The Lord Chancellor said the decision was based on evidence gathered through Calls for Evidence, consultations with HM Treasury and an independent expert panel, and advice from government officials.
Mahmood explained that the rate reflects investment returns claimants are expected to achieve on their compensation over time. Given the shifts in the economic landscape since the last review in 2019, the updated rate accounts for improved investment conditions and adjusts compensation sums accordingly.
The revised rate is expected to reduce motor insurance premiums for drivers in England and Wales. PwC actuaries estimate average premium reductions of £50 per policy, representing a 5% decrease.
Mohammad Khan, head of general insurance at PwC UK, noted that this adjustment marks a turning point for motor insurance premiums, which had risen by over 20% in the past two years.
"The increase of the personal injury discount rate by 0.75% to 0.5% in England and Wales - matching the personal injury discount rate announced earlier this year for Scotland and Northern Ireland - should bring some consistency to aspects of how motor insurance premiums and payouts are calculated across the UK,” Khan said.
The change is expected to bring additional competitiveness to the motor insurance market, potentially driving further reductions in premiums. However, insurers will continue to navigate challenges in balancing pricing strategies against rising costs in other areas of claims.
Since 2019, investment returns have improved significantly, allowing claimants to achieve similar returns with smaller compensation sums. PwC noted that this shift is central to the government’s rationale for increasing the rate.
Jon Dye, director of underwriting for motor insurance at QBE Insurance, welcomed the review and the rate adjustment.
“We welcome the Personal Injury Discount Rate review and the move announced today to align the rate with more recent economic conditions and the rates recently announced by Scotland and Northern Ireland,” Dye said.
While Dye acknowledged concerns about overcompensation for some claimants, he said the adjustment would help address upward pressures on serious bodily injury claims, including care costs, which have been increasing at rates of 9-12%.
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