With most reinsurance renewals happening next January, the Association of British Insurers (ABI) is expecting a third wave of hikes for motor insurance premiums – that is if the personal injury discount rate issue is not sorted out.
The Ogden rate or the discount rate used in calculating compensation payments for personal injury claims – which was adjusted last February from 2.5% to -0.75% – has already driven a significant rise in premiums, as confirmed by insurance providers.
According to the ABI, these initial increases will likely be followed by further hikes between now and the beginning of 2018 as reinsurance renewals are due around this time.
“Many insurers choose to reinsure against large risks, such as catastrophic personal injury claims, which means some of the impact of the recent change will so far have been absorbed by existing reinsurance contracts,” explained the ABI.
The trade association’s latest motor premium tracker for the first quarter of 2017 shows £462 as the average premium paid, up by 8% since the same period last year.
While the use of telematics is keeping costs under control for the 18-20 age group, these young drivers still paid the highest average premiums last year at £973. The biggest increases were posted for the late 50s and late 80s age groups, however, at almost £35. Those aged 66-70 paid the least at £260.
The ABI described the premiums as at record levels, forecasting future hikes if claims costs are not reduced. It noted that the figures pre-date the Ogden rate cut which massively increases claims costs and will inevitably lead to higher premiums.
“We’re pleased the Government are going to bring forward a Civil Liability Bill to reform whiplash style personal injury compensation, but the benefits could be wiped out if they don’t defuse the discount rate bombshell,” said ABI director general Huw Evans.
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