Cut in compensation for serious injuries will see insurance premiums rise, with young drivers the worst hit by the unexpected deep cut in the Ogden rate, from 2.5% to -0.75%.
BSTBritain’s car insurers suffered combined losses of £3.5bn last year due to controversial new compensation rules for serious injuries, according to a report which predicts further sharp rises in insurance premiums, especially for young drivers.
Consultancy EY said the new Ogden formula led to significant underwriting losses for the motor insurance market in 2016. The unexpectedly deep cut in the Ogden rate, from 2.5% to -0.75%, prompted a furious backlash from insurers who claim that it will “overcompensate” victims of car crashes or medical errors in hospitals.
Although the change to the discount rate was announced in February, most insurers reflected the impact on outstanding claims in their 2016 figures. EY estimates the overall cost of the Ogden rate change to insurers and reinsurers at £3.5bn.
About £2.4bn of these losses have been disclosed so far, with Admiral one of the worst hit. Its 2016 pretax profits were reduced by £105m, falling by a quarter to £284.3m. Car insurance in UK hits record high as tax rate on premiums increases.
However, the NHS and other parts of the public sector such as the armed forces are set to take an even bigger hit, of nearly £6bn. The first case settled under the new Ogden rate in late March forced an NHS trust to nearly triple its payout to a 10-year-old girl left with cerebral palsy from £3.8m to £9.3m.Advertisement
UK car insurance rates hit record highs between January and March, totalling £462bn, according to the Association of British Insurers. Rising claims costs due to the new Ogden rate and the rise in insurance premium tax to 12% from this monthcould push premiums up by a further 9% in 2017 to £503bn, EY predicts. This will add £28 to the average cost of a comprehensive policy.
Tony Sault, the UK general insurance market lead at EY, said:
“Further effects will be felt next year when annual reinsurance cover for large claims come up for renewal. Young drivers will undoubtedly have to bear the brunt of the increase due to the disproportionate number of larger claims they cause.
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