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Seems premiums  are due to go up, as result of Gov changes, concerning pay outs to long term injuries.  But could they save  money on bogus claims, like whiplash injuries ?

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From someone who practices in this area. let me clarify a few points. These are all my own personal views :

 

LASPO 2013 reduced legal costs in car accidents by 40%. Did premiums go down? No. The ABI admitted at a recent parliamentary committee that the insurance industry had saved hundreds of millions from this change.

 

The discount rate has been at 2.5% since 2001 since which returns in long term investments were much less. Did premiums go down to reflect the windfall to the insurers? No. BTW if a person receiving a future loss award runs out of the money provided under the award for their long term care, then the tax payer will have to pick the tab up. These awards are usually for the most seriously injured (tetraplegia, brain injury or other long term conditions that can last for life) and thus I trust you wont begrudge them receiving money from the person who caused it (via insurance) as opposed to the taxpayer in general?

 

The reforms quoted above start in October 2018 if parliament approves the same. The average premium reduction will be £40 per year. There is no statutory mechanism to ensure that the savings are passed on in premium reduction and as of yet only 2 insurers (Aviva /LV) have "promised" to pass on the savings. However what you don't know is that the proposed reforms will also result in losses to the NHS (they can recover from insurers the costs of attending hospital / in patients / ambulance services) and the DWP (benefits paid are deductible from damages and repaid to the DWP). The sums quoted are many millions per annum. Again question whether that is reasonable?

 

The government recently announced an increase in insurance premium tax (IPT) which in effect wiped out the saving per policy proposed anyway.  

 

The proposed reforms will result in between 35,000 and 60,000 job losses. Income Tax revenue, VAT revenue will drop. benefit payments will increase.

 

Oh and Whiplash numbers are dropping but ironically reducing the costs recoverable means that challenging them becomes less economically viable and as such means that they are likely to go up again albeit the effect will be payments will be less.

 

Always the bigger picture to consider as opposed to just the headline.

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Adrian,

 

That was interesting.

 

What you describe is the usual mechanism where nobody complains about making profits they hadn't planned. Equally though the Government should not simply legitimise that behaviour by compensating losses from the inflated level. However the problem in part is also caused by the fact that the choice of Long Term Bonds was made by the Courts, and not government when rates and inflation were different from today, without any mechanism for review . Perhaps a sensible way forwards would be for the industry to press for legislation to specify a mixed fund  rather than just gilts in order to improve the yield. Unfortunately the inflation forecast will not get better for a while yet and that has to be taken from the predicted yield. Do you think the industry will follow such a policy or are they set on a self-destructive course?

 

Your point about the NHS is correct and there is another side to that as well since the lower discount rate will cost the NHS another billion in negligence compensation which the government has said it will compensate but at what real cost to the NHS funds. It seems entirely inappropriate for an arbitrary, if at the time logical decision by a high court judge, to have these kinds of effects. 

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I must admit the -0.75% rate came as a bit of a surprise for all. Most were banking on a 1% or 1.5% amended rate.

 

It appears the reliance on gilts which in the past were good strong performers is at the heart of this. As Truss said, she was bound by law to make this calculation. I suspect this will change and change very quickly. Suggestions of a graded discount rate based on period its supposed to last has been suggested to reflect the differences in short term and long term investments.  Im sure most insurers are already looking at submitting alternative procedures.

 

I don't think this new figure will be around too long. Of course the issue with the NHS is that if they didn't make as many mistakes or decided to settle claims quicker then savings could be made that would easily offset this.

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