Car insurance could fall as Govt backtracks on compensation


Ministers are set to backtrack on changes to personal injury payouts, including those for road incidents, following a storm of criticism earlier this year.

The Ministry of Justice (MoJ) said the reforms could see significant savings for motorists through lower car insurance premiums.


Justice secretary, David Lidington, has announced draft legislation that would see the ‘discount rate’ set with reference to ‘low risk’ rather than ‘very low risk’ investments, which the MoJ said would better reflect evidence on how people actually invest compensation lump sums.

The discount rate is the percentage used to adjust compensation awards for victims of serious personal injury, according to the amount they can expect to earn by investing it. A low – or negative – discount rate means higher payouts.

The MoJ said the change would see the rate set in the region of 0% to 1%, compared to the current figure of minus 0.75%. In February this year the discount rate was reduced from 2.5%, which it was estimated could cost insurers around £2bn a year and increase annual motor insurance premiums by £50-£75.

Following criticism from the insurance industry, which called the earlier change ‘crazy’, ministers launched a review of the issue.

Mr Lidington said: ‘We want to introduce a new framework based on how claimants actually invest, as well as making sure the rate is reviewed fairly and regularly. In developing our proposals, we have listened carefully to the views of others, and we will continue to engage as we move forward.’

Huw Evans, director general of the Association of British Insurers, said: ‘This is a welcome reform proposal to deliver a personal injury discount rate that is fairer for claimants, customers and taxpayers alike.

‘If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers.’

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