Your car insurance premiums could become significantly cheaper after the government revised its decision on calculating compensation for accident victims.
Following pressure from the insurance industry, the government has now released draft legislation to review the Ogden rate, which was previously changed in March 2017. The Ogden Rate – also known as the discount rate – is the formula used to calculate compensation for victims of serious personal injury.
It is expected the rate will be altered to reduce pay-outs by insurers – a move that is likely to drive down premiums for motorists.
The proposals have not yet passed through the House of Commons. While the decision would decrease the compensation awarded to seriously injured victims, it is also expected to give motorists a respite from the ever-increasing costs of owning a car.
Find out more: best and worst car insurance – dozens of insurers rated
What is the Ogden rate?
When an accident victim suffers serious personal injury, the insurance company pays out compensation as a lump sum, based on how much the victim will need to live comfortably for the rest of their life.
The Ogden rate – also known as the discount rate – is used to adjust the amount of compensation awarded, on the assumption that a claimant could earn interest by investing that lump sum.
Since 2001, the rate was fixed at 2.5%, resulting in a significant discount for insurance companies. For every £1,000 awarded to the victim, the insurer would pay out £975 – and many claims run into the hundreds of thousands.
In March 2017, the Ogden Rate was revised to -0.75%, resulting in claimants being awarded more compensation – the pay-out for every £1,000 awarded rose to £1,007.50. To cover these additional costs, insurers increased their premiums across all motorists.
The decision to decrease the Ogden rate was based on low interest rates, but insurers argued they were getting a harsh deal. In response, the government announced a consultation into the rate. On Thursday, it proposed draft legislation that would lift the rate to a figure between 0% and 1%.
How to lower your car insurance premium
Your car insurance premium is based on both your perceived risk as a motorist and your insurer’s overall running costs.
That’s why car insurance premiums went up across the board following the change to the Ogden rate and recent increases to Insurance Premium Tax (IPT).
Still, there are steps you can take to make sure you don’t pay through the nose to insure your vehicle.
Here, our experts list their top three tips:
1. Shop around
Price comparison websites can help you find dozens of quotes quickly and easily. Check the details of the policies to make sure they cover everything you need. Our car insurance tables reveal which insurers offer the best customer service.
2. Avoid auto-renewal
Don’t allow your policy to roll into another year without shopping around for a better deal. Insurers reserve the best deals for new customers, rather than existing customers who auto-renew. Our eMindme reminder tool will help ensure you don’t miss your miss your renewal date.
Even if you want to stay with your existing insurance company, finding cheaper quotes from competitors can be a brilliant method of lowering your premium. Find a cheaper rate and use this as a platform to haggle with your insurer. Our haggling guide includes a field-tested script to help you successfully barter for a better deal.
Find out more: how to find cheap car insurance – more expert tips