The Association of British Insurers (ABI) tells us that motorists have experienced the fast year-on-year rise in insurance premiums since records began being made five years ago.
According to the ABI the average cost of car insurance premiums have risen by 11% during the past 12 months. According to the industry body an annual policy typically works out to £484. Just weeks ago, the ABI informed is during 2016 the cost of car insurance had already reached record highs.
This news is likely to place additional pressure on the government to alter its decision to reduce the so-called discount rate (also known as the Ogden rate) brought in last March.
While this decision has increased the amount paid to accident victims it also raised premiums substantially.
The ABI claims that the change in the discount rate has been the main cause for the increase cost of premiums, but it has also blamed the latest rise in premium tax which, from June 1st, was increased from 10 percent to 12 percent.
Personal injury lawyers disagree with the ABI stating that while failing to pay proper compensation to seriously injured accident victims, the insurance industry has been stealthily building profits.
The ABI is calling on the government to introduce a new system for calculating compensation payments. The Ministry of Justice has already entered discussions on the delivery of a replacement system. However, it has yet to announce a decision.
The ‘Discount Rate’ has been designed to compensate insurers who have had to pay out lump sums to those suffering lifelong injuries, the hypothesis being that accident victims with lifelong injuries can earn additional money by investing their sums of compensation. As a consequence, compensation award were previously lowered by 2.5 percent, which is the amount that sufferers could earn in interest should they invest in government bonds.
However, these bond yields, or interest rates, have dropped in value and so the compensation payouts to accident victims will fall. When the inflation rate is taken into consideration, accident victims’ bond yields will be negative so, in real terms, they’ll lose money over the longer term. The government claims that this is the reason that it has lowered the discount rate to just 0.75 percent.