Insurers have been under-settling catastrophic injury claims for years. This is what the recent decision by the government to correct the discount rate on personal injury claims has exposed.
UK insurers have been spending monies that should have been reserved for claims, on themselves. For years there has been reports of inflated profits, bonuses, dividends and fat cat salaries. Yet these are the same organisations, whose influence the government chose to side with regarding personal injury reforms.
Insurers playing the victims
Justice Minister, Liz Truss’ (pictured above) announcement a couple of weeks ago, set the ball rolling on the latest insurer led revolt. Indeed, they are already playing the victim as they face losses on their inflated profits. Direct Line states a 38% drop in profit, with almost £230 million cut from the company’s pre-tax surplus.
It didn’t take long for the CEO’s of these companies to seek redress over Truss’ announcement. Going right over Minister Truss’ head to lobby Chancellor of the Exchequer, Philip Hammond, less than 24 hours after the announcement.
Motor insurance policies to rise
Speaking about the announcement, Director General at the Association of British Insurers, Huw Evans, said:
“Cutting the discount rate to -0.75% from 2.5% is a crazy decision by Liz Truss. Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK. We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.
“To make such a significant change to the rate using a broken formula is reckless in the extreme, and shows an utter disregard for the impact this will have on consumers, businesses and the wider operation of the insurance market.
“We have repeatedly warned the Government that this could lead to very significant price rises, with younger drivers in particular likely to find it much harder to get affordable insurance. It is also a massive own goal that lands the NHS with a likely £1billion hike in compensation bills when it needs it the least.
“We need a fairer deal for consumers and claimants. We cannot wait until Easter – the Ministry of Justice must commit to alternatives immediately so changes to the law can be included in the Prison and Courts Bill.”
However, Scott Rees and Co Marketing Partner, David Byrne (pictured left) hit back at the claims accusing the insurers of hypocritical behaviour.
“This day has been coming for years and the insurers knew it. They are quick to commit to increasing insurance premiums in light of this. Yet where is their commitment to passing on the savings due from the soft tissue reforms back to the motorist?
“Insurers have been under-settling victims of catastrophic injury for years. They have invested those savings it into their own profits, to enable their high salaries and over generous bonuses.”
What is the personal injury discount rate?
The personal injury ‘discount rate’ is an easy form of calculating future losses in a personal injury cases. Serious injury sufferers often need extensive care and treatment for years. When calculating the cost of that care, they always consider interest and inflation. The rate protects claimants from rising costs, so they receive the right level of financial support.
The discount rate is commonly applied to very serious injury cases, including:
Serious injuries often carry high costs. The discount rate therefore ensures enough is set aside for the future to cover all necessary assistance. Therefore, as the rate is so pivotal to seriously injured claimants’ lives, it would seem immoral that the insurers want to keep it so high.