Car insurance for young drivers could go up by £1,000 a year due to radical new compensation changes
Changes to the way insurance firms are charged mean premiums for drivers could soar
YOUNG Brits face a £1,000 a-year hike in motor insurance after a radical Government move to push up personal injury payouts.
Furious insurers yesterday said some teenagers could even be priced off the road as they blasted the announcement by Justice Secretary Liz Truss.
And Downing Street admitted the NHS’ bill for criminal negligence could also rocket by as much as £1 billion a year – with taxpayers picking up the tab.
Ms Truss announced she was cutting the so-called ‘discount rate’ that is used when calculating compensation payments to people who suffer life-changing injuries.
Currently courts take 2.5 per cent off compensation awards to reflect the interest a victim will earn on the lump sum when they put it in the bank.
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.
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Ms Truss said: “There will clearly be significant implications across the public and private sector.”
Shares in insurance giants plunged with Direct Line down nearly 8 per cent – wiping £370 million off their market value.
And No.10 was forced to say it would cover any extra litigation cost faced by the NHS and GPs.
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.
The new discount rate reflects the fact Bank of England interest rates are at a record low, the Ministry of Justice added.
Powerful Commons Committee chair Andrew Tyrie said the MoJ decision had the “look of absurdity” about it.
The Tory veteran said: “The principle that people should receive full compensation for the losses that they have suffered is a reasonable one.
“But implementing it in this way is probably not, and has a look of absurdity about it.”
And furious insurers accused Ministers for showing an “utter disregard” for motorists and businesses.
Association for British Insurers’ director general Huw Evans said: “We have repeatedly warned the Government that this could lead to very significant price rises, with younger drivers in particular likely to find it much harder to get affordable insurance.
“It is a massive own goal that lands the NHS with a likely £1 billion hike in compensation bills when it needs it the least.”
PWC general insurance chief Mohammad Khan said policies could rocket if insurers pass on the higher costs. He 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.”
Ms Truss committed to reviewing the formula used to set the discount rate. And she said the Chancellor would be meeting with the insurance industry to discuss the changes.
RAC insurance director Mark Godfrey said: “It is a bizarre decision from the Government to make the final adjustment to at the very same time as they have effectively admitted the current system is flawed by announcing a consultation on finding a better and fairer framework for handling life-changing personal injury pay-outs.
“This move will increase the total amount of compensation awarded in every such case and this will instantly increase the cost of motor insurance premiums as insurers pass on the costs.”
Confused.com owner Admiral said the move could wipe £70 million from its profits -but it left the dividend it pays shareholders unchanged. Direct Line said its profits could fall by £230 million.
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