Archive for March, 2017

The truth behind the increase in Insurance Premiums

Friday, March 3rd, 2017

Monday morning saw, what could be considered, a cataclysmic announcement to rival any other change in the field of Personal Injury and Clinical Negligence over recent years.

As we have come to expect from the Insurance industry screams of “foul play” were echoed by tangible falls in share prices for many Insurers. “The public will suffer….businesses will suffer….everyone will have to pay huge increases for their insurance premiums! It’s disastrous …”

15 bosses of the biggest insurance companies, the well-established champions of the simple man, marched on Phillip Hammond demanding change….clearly to protect the common man!

Really? I think not!

So what’s it all about? Why has this change in the “discount rate” been the cause of such drama?

Let’s give this issue some context.

Put simply, the “discount rate” will only affect claims where an injured person has been left with ongoing problems which will affect their future ability to work; take care of themselves; need ongoing treatment etc. To get to this stage you have to win – someone has been to blame! It’s the medical experts who try to assess what the future needs will be.

It isn’t likely to be your whiplash case – the usual target for insurers; it won’t be fraudulent cases as they should be found out long before it comes to a Judge.

It’s the case of the driver doing 50 mph in a 40 mph zone who knocks down the 10 year old girl, leaving her unable to walk again or it’s the employer who cuts corners, making you work on an unsafe machine causing you to lose your right hand.

For the last 16 years the Courts have told these lifelong injured that we’ll award you a chunk of money – you can squirrel it away somewhere safe and behold you will get a 2.5% return every year. The money squirreled away will then last until you die.

Every pensioner living on their savings knows how hilarious such a suggestion actually is.

The Base Rate of Interest dropped to 2% in December 2008; dropping further to 0.5 % by March 2009 where it stayed until August 2016 when it finally fell to 0.25%.

Will those lump sums really last until these people die? These awards aren’t for flash cars or exotic holidays. These awards are to pay for the lost earnings; the lost pensions; the wheelchairs for life or prosthetic limbs for life. What happens when the money runs out before they die?

Claimant Solicitors have been calling for a reduction in the discount rate for many years.

Insurers themselves have been waiting for a reduction in the discount rate from 2.5%. Most have increased reserves anticipating a drop to between 1 % and 1.5%.

What has surprised all on both sides of the argument is the level that it has been dropped to, namely minus 0.75%.

However I didn’t hear Insurers rallying to support genuinely injured people from 2008 onwards who were being short changed, demanding that the rate should be reduced. The insurers have basked in the glory of the refusal to reduce the rate for at least the last 9 years and increased their coffers quite happily. What’s been happening to all that added “fat” and windfall?

Do premiums have to go up…or certainly go up as much as anticipated?

One of the insurers quoted in articles over the last few days is forecasting a loss of profit of between £215 million and £230 million. That same insurer posted operating profits of £520.7 million in 2015 up from £506 million in 2014.

Am I missing something?

Premiums don’t “have” to increase by as much as alleged because of the drop in the discount rate. The premiums “have” to be increased to secure and maintain the profits that these companies’ shareholders have become accustomed to.

The boss of the ABI professes the reduction “will “overcompensate” a few thousand claimants a year”.

Personally, I suspect that the 10 year old in the wheelchair or the man without a hand would happily give back that money to have their pre accident lives back.

Perhaps the difference in opinion rests with whether it is your child or husband – you – that’s been affected, whose lives will never be the same again.