Car insurance premiums for MILLIONS of drivers to rise by £75 a year due to compensation payout change
Changes to the way insurance firms are charged mean premiums for drivers could soar
CAR insurance premiums for millions of drivers could rise by an average of £75 a year as a result of a new government ruling, experts warned yesterday.
A new formula for calculating compensation payments for those who suffer long-term injuries as a result of crashes was announced by the Ministry of Justice.
Shares in insurance firms fell after the announcement, with some saying that the change would hit profits.
What is changing and why?
Yesterday, Justice Secretary Liz Truss announced that she was cutting a so-called "discount rate" that is used when calculating compensation payment to people who suffer life-changing injuries.
Currently courts take 2.5 per cent off compensation payouts to reflect the interest a victim will earn on the lump sum when they put it in the bank.
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But from March 20, this rate will fall to MINUS 0.75 per cent – meaning insurers, other companies and public sector bodies such as the NHS will have to cough up more.
The Government insisted it had no choice but to make changes before the end of February given the threat of a judicial review from personal injury lawyers.
How much will insurance premiums go up by?
If insurers pass on the extra cost then experts have said that policies could rocket.
The Association of British Insurers (ABI) described the decision as "crazy". The move could increase costs for insurers by up to £3 billion for as many as 36 million drivers, according to market research firm Consumer Intelligence.
Younger drivers will be the worst affected with premiums rising by around £1,000 a year. While other drivers could see their costs go up by £75 a year on average.
Three ways to cut your car insurance bills
IT pays to shop around for the best deal on your car insurance. Here are five ways to cut your insurance bill right now.
NEVER autorenew. Rolling over your policy with your insuer means you'll pay more than you need to. Shop around for the best deal using a comparison website and challenge your existing provider to match the best deal you find.
ADD an extra driver to your policy. It is illegal to claim someone is a main driver when the're not, but adding a secondary driver can save you money without breaking the law. Ideally the second driver would be someone with a clear driving licence and good no-claims history.
PAY your premium in full. If you can afford to stump up the cash outright. Insurers usually whack on a hefty interest charge for monthly repayments so you can make a significant saving by paying upfront.
PWC general insurance chief Mohammad Khan said: “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 to £75 on an average comprehensive motor insurance policy.
“But there could be higher increases for young and older drivers – potentially up to £1,000 for younger 18-to-22 year-old drivers – and a rise of up to £300 for older over 65 year-old drivers.”
If you're a victim in a crash then you could get a higher payout
There is a tiny silver lining to the changes. It means that if you're a victim of a crash you could expect more cash from a lump sum payout upfront.
Lawyers who have campaigned for the change welcomed the news.
"People already coping with the most severe injuries have been deprived of the help and care they need for years," said the Association of Personal Injury Lawyers.
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