The average UK car insurance premium is set to increase by £75.
Following a move by the Government to improve the personal injury payouts to victims of car accidents, the industry has said that motorists could be hit with higher premiums.
The Telegraph reports that young people could be “priced out of owning a car” after insurers warned that their premiums could leap by £1,000. The news is also not good for those older drivers considered to be some of the safest, with the over 65s potentially facing a premium rate hike of around £300. It’s also being reported that the average price of premiums could rise by £75 just to cope with the changes.
This latest attack on motorists’ finances follows Justice Secretary Liz Truss’ announcement that more money will be paid out in compensation to those affected by medical negligence and car accidents.
In response to the changes, Ms Truss warned of “significant implications across the public and private sector”.
The Government’s new approach relates to a calculation called the Discount Rate, which has not be changed since 2001. The lump sums given to victims is linked to a legally defined financial formula that assumes recipients will be dependent on the lump sum for a long time - sometimes for life. That rate of 2.5 percent has now been slashed to minus 0.75 percent, which is expected to see compensation payouts rise. The move is likely to hit not just consumers but the insurance industry itself.
Commenting on the situation, Huw Evans, director general of the Association of British Insurers, said: "Cutting the discount rate to minus 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 overcompensate a few thousand claimants a year."