Industry players expect new Civil Liability Bill to lead to a positive discount rate with some predicting a rate of between 0-1%.
The insurance industry has welcomed the government’s introduction of the Civil Liability Bill, which includes changes to the way the discount rate is set and how whiplash claims are paid.
Graeme Trudgill, executive director of the British Insurance Brokers’ Association (Biba) told Insurance Age that the trade body was “very pleased” with the bill.
He highlighted the problems that had come from the surprise change of the Ogden rate from 2.5% to minus 0.75% a year ago, including pressure on insurer reserves, the consequence of underinsurance and the effects it has had on premiums.
“The bill is starting today and it will be a while until it has made its way through the House of Lords and the Commons, but we are very supportive of this and it’s good news,” Trudgill commented.
The new bill does not provide an indication of whether the discount rate will be changed, but Trudgill added: “They’re talking about moving from ‘very low risk’ to ‘low risk’ which is the important bit.
“The rate is not likely to be where it used to be at 2.5%, but we also don’t expect it to be minus anything.”
Trudgill further urged the industry to be patient, highlighting that it could take a while for the bill to go through Parliament, as the government is also busy with the EU Withdrawal Bill and Brexit.
“We want it to go through swiftly, but we also want the right results. We are very interested in seeing the details of the bill,” he continued.
Adding: “It’s a year ago today that is all happened and it has been a long time for the industry. The whole of the industry has been calling for a change and finally we have a bill.”
Meanwhile insurers have also welcomed the government’s decision to crack down on whiplash claims as well as the discount rate reform and urged it to progress the bill quickly.
While a majority of insurers declined to speculate on where the Ogden rate might end up if it is changed, LV claims director Martin Milliner agreed with Biba that it would not remain negative and expected it to be revised to between 0.5% and 1%.
Similarly, Mohammad Khan, general insurance leader at PwC expected that the rate could be increased to 0% or above.
Commenting on the bill, Steve Treloar, chief executive officer of LV General Insurance, said: “It’s taken a long time to get here but we’re pleased that the government is taking the necessary steps to clamp down on whiplash and reform the discount rate system.
“For too long, the UK has been the world capital for whiplash claims, adding around £35 to the average car insurance policy.”
He continued: “Last year’s changes to the discount rate resulted in the UK being the only country in the world with a negative rate and led to millions of drivers and businesses seeing record high premiums.
“The new approach from government will not only ensure fair payments for those making claims but it will also help reduce the cost of car insurance for drivers, and LV commits to passing on 100% of the savings produced by this legislation.”
Amanda Blanc, CEO of Axa UK and Ireland, said the changes would create a more balanced situation.
She commented: “The government’s announcement today on the discount rate strikes the right balance between under and over compensation.
“Fairness and transparency for personal injury compensation is something that everyone can agree on – it is only right that it works in everyone’s best interests.”
Blanc added that this “sense of fairness is also seen in the government’s commitment to stand by honest motorists in introducing whiplash reforms”.
In addition, Aviva UK managing director Rob Townend, stated that the government had “called time on the UK’s compensation culture which costs honest motorists £5m a day”.
Townend added: “The whiplash reforms are badly needed to cut cost pressures on drivers.”
He further noted that the provider welcomed “the government’s commitment to updating how the personal injury discount rate is calculated”.
Townend continued: “This important legislation should ensure that those who suffer serious injuries receive full and fair compensation without the unnecessary impact on premiums.
“Again, we commit to passing on any savings from this legislation to our customers.”
Ageas UK CEO Andy Watson commented: “The existing discount rate is having a detrimental effect on taxpayers, consumers, the NHS and the UK insurance industry.
“Our policy holders have endured over a year of high motor insurance premiums following the decision by a previous Lord Chancellor to set the discount rate unfairly low.”
He added: “On behalf of our customers we welcome that the government is now recognising a more accurate level of investment risk meaning that we can still provide a fair level of compensation for claimants, while ensuring the preservation of an insurance sector able to deliver this essential service to customers at a competitive price.
“It is important now that the bill progresses quickly, the panel put in place as outlined in the consultation and the discount rate revised accordingly.”
Mohammad Khan, general insurance leader at PwC, said the announcement “should be welcomed by UK motorists”, adding: “By suggesting the [Ogden] rate should be set with reference to ‘low risk’ rather than ‘very low risk’ investments – which probably means an investment that returns a positive rate which claimants actually invest in, rather than the return on index linked gilts which are negative at present.
“This may increase the rate to 0% or above. This should help reduce annual motor insurance premiums for young drivers (aged 25 and below) by an average of at least £200 and for the average driver by at least a further £50.”
This article is care of www.insuranceage.co.uk and this article can be found here.www.insuranceage.co.uk/insurer/3315656/insurance-industry-welcomes-ogden-rate-reform?utm_medium=email&utm_campaign=IA.Daily_RL.EU.A.U&utm_source=IA.DCM.Editors_Updates