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Personal injury compensation reform to drive car insurance savings

Proposed changes to the personal injury discount rate in England and Wales could help counter rising car insurance prices, according to industry experts.

Ministry of Justice

Ministry of Justice

The Ministry of Justice has published draft legislation on how the rate – known as the Ogden discount rate and used calculate compensation payments to accident victims – should be set in the future.

The draft provisions – which interested parties are being invited to comment on – could cut the compensation payments made out by insurance firms, leading to lower insurance premiums for drivers, and would also see the rate reviewed at least every three years following consultation with an expert panel.

The proposals follow a recent consultation on how the rate should be set, which saw the majority of the 135 respondents – who were mainly from the insurance industry – say they believed that the law on how the discount rate is set is currently flawed in some way and that the law should be changed in some way.

Earlier this summer, the Association of British Insurers (ABI) warned that the Government’s previous decision to change the personal injury Discount Rate would massively increase claims costs and inevitably lead to higher premiums as it highlighted that drivers in nearly all age groups are paying record amounts for their car insurance.

Welcoming the latest plans, Huw Evans, director general of the ABI, said: “This is a welcome reform proposal to deliver a personal injury discount rate that is fairer for claimants, customers and taxpayers alike. The reforms would see the discount rate better reflect how claimants actually invest their compensation in reality and will provide a sound basis for setting the rate in the future. If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers.”

Martin Dyson, head of RAC Insurance, added: “This is good news for motorists as the price of car insurance has risen by around 10% in the last year with the Government’s change to the discount rate being a significant factor. This led to insurers having to make larger compensation payments which in turn the industry then had to fund in the only way it could by increasing premiums.

“The way the rate is to be set going forwards should be fair to those receiving compensation payments while also helping to ensure car insurance premiums are as affordable as possible.”

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.