Car insurance premiums could rise by around £100 per driver following an adjustment to the way personal injury payouts are calculated.
After an accident resulting in serious personal injury – such as a car crash or medical negligence – victims are awarded a compensation payment by the courts. This is usually in the form of a large lump sum.
How compensation is calculated
Courts use a formula to calculate the amount claimants are eligible for, which among other things, takes into account how much they would be expected to earn from the lump sum if they invested it.
The Ministry of Justice has announced that it will be amending this formula. Since 2001 a 2.5% discount was applied to the compensation. But to account for inflation, this discount has now been revised to minus 0.75%, meaning claimants will be awarded higher payouts. The change comes into effect on 20 March 2017.
On the 28th February, Chancellor Philip Hammond announced that the government are to “urgently” launch a consultation – looking at whether the discount rate is fair to claimants and drivers, and the impact on affected insurance premiums.
This doesn’t mean that the 20 March rate change won’t go ahead – but it could potentially result in changes to how the rate is set in future.
The impact on car insurance policies
Insurers have spoken out against the decision. They claim that the calculation is flawed and estimate the increased costs of compensation claims will affect the prices of up to 36 million motor insurance policies. Different experts have predicted increases of between £75-£100 in the average premium, with older and younger drivers likely to see even steeper hikes.
This comes ahead of a planned hike on Insurance Premium Tax (IPT), which is also expected to hit the wallets of car insurance customers when it’s introduced in June.
Car insurance premiums rose by almost 12% across 2016 – a trend that doesn’t show signs of reversing. This makes it all the more crucial to make sure you’re getting the best possible quote when renewing your insurance.
How to cut your insurance premiums
Car insurance is often thought of as a grudge purchase. If you’re a driver, you’ve no choice but to buy it – but fortunately there are ways to slash the cost. Our guide on finding cheap car insurance supplies you with plenty of tips on getting the best deal without compromising on cover.
When we surveyed 4,000 insurance customers in November last year, 79% of those who’d disputed the price they were offered managed to secure a better deal. On average, those who haggled at renewal saved £64. If you don’t know where to start when it comes to haggling, we’ve supplied a full guide on how to do it successfully.
At renewal, you’re always in a better position to negotiate if you have quotes from rival insurers to hand. So use price comparison sites to get multiple quotes quickly.