Personal injury payouts in the UK are 17 times higher than in some other European countries, causing high insurance prices for young drivers, according to the RAC foundation.
Compensation payments for those suffering the worst case injuries in the UK can be up to £10m. The costs differ substantially from other European countries, with France and Germany at £6m and Sweden just £600,000, according to a RAC Foundation study.
The difference is likely to increase as a result of the cut in the discount rate from 2.5% to minus 0.75% in February this year.
This calculation is applied by the courts to work out compensation payments adjusted according to the interest claimants can expect to earn through investment – with the percentage linked in law to returns on the lowest risk investments, typically Index Linked Gilts.
As a result, it is likely insurers will have to pay larger up-front lump sums to fund care required for those with worst case injuries. The RAC Foundation has described the cut as ‘bizzare’ and ‘crazy’.
The report says: ‘The UK Government’s own calculations for a young quadriplegic requiring £100,000 a year in care costs is that the lump sum award will increase from £5-6m to £9m – up around 60%.
'The UK Prudential Regulation Authority has estimated that overall claims costs could rise by £2bn annually.’
The impact of increased premiums will likely be felt most by young drivers who are already paying the highest amount for cover.
Steve Gooding, director of the RAC Foundation, said ‘One reason is the high pay outs insurers must make when people are badly hurt on the roads. Another is recent hikes in insurance premium tax which now stands at 12%, hitting young drivers particularly hard as they are already paying high premiums.'
The report also points to the culture of whiplash claims as a UK phenomenon, driven by claim handling companies, and welcomed the commitment in the recent Queen’s Speech 'to tackling fraudulent claims which load costs back onto responsible drivers’.