Insurers have warned that annual insurance premiums could rise by a dramatic amount following changes in legislation.
Whilst drivers that are over the age of 65 could see an increase in £300, younger drivers will be hit the hardest, facing premium increases of up to £1,000.
It is estimated that the average comprehensive motor insurance policy could increase by as much as £75 a year in order to adjust to the pay-out changes.
So, what are the changes? And why will the effect the price of my premium?
The change comes after a review of the Discount Rate, a system that has not been altered since 2001.
When victims of life changing injuries accept a compensatory payment, the amount that they are paid is determined by the interest rates at which the insurer is expecting to earn on the investment.
From March 20, the Discount Rate will fall from 2.5% to minus 0.75%. This means that insurers will have to increase their premiums substantially in order to make a profit on their investment.
Liz Truss, the Justice secretary, has announced that those affected by any sort of medical negligence, car crashe or other incidents that cause injury will receive more money from their lump sum payouts, though this will come at the cost of higher annual insurance premiums.
Indeed, the Telegraph have reported that the legislation will “put increasing pressure on insurers, the NHS and other public bodies who are responsible for paying out the increased claims.”
In regards to how the changes will affect UK drivers, Mohammad Khan, the UK general insurance leader at PwC stated that:
“Unfortunately, this announcement will have a significant adverse impact on motor insurance prices that drivers pay and also commercial insurance rates paid by small businesses…as a direct result of this change, we anticipate an increase of £50-£75 on an average comprehensive motor insurance policy, with higher increases for younger and older drivers – potentially up to £1,000 for younger drivers (18-22 year olds) and a rise of up to £300 for older drivers (over 65 years old).”
Khan continued to say:
“This announcement, on top of the recent increases in insurance premium tax, will make redundant any savings to premiums as a result of the government’s personal injury legal reforms which were anticipated to generate approximately £40 saving per motor insurance policy”
So is there any way to avoid the onslaught of premium increases, or is it all doom and gloom from here on out?
As we previously stated, premiums are expected to rise, and in some instances, that rise will be dramatic. However, all hope is not lost. Insurers will still have differing rates for drivers dependant on a drivers record, type of cover, age and vehicle.
The wisest thing to do would be to shop around. By doing so, you could save literally hundreds upon hundreds of pounds.
Khan also concluded that shopping around is the best way to minimise your premium increase. Indeed, he states that “Due to the competitive nature of the insurance industry, policyholders should be able to reduce any impact by shopping around but younger and older drivers will see significant price increases regardless.
“The announcement will also impact reinsurance pricing by pushing prices up for motor and liability reinsurance cover.
“This may impact the business models of companies that rely on low layers of reinsurance who will be faced with much higher costs of doing business after they renew their reinsurance.”