Insurance leaders called on the government to set a new discount rate this year in an attempt to mitigate the catastrophic effects of its decision to cut the rate on Monday.
Justice secretary Liz Truss surprised insurers by cutting the personal injury discount rate, which takes into account the long-term cost of care and loss of earnings where claimants choose to take an upfront lump sum.
Shares in some of the UK's leading insurers were sent tumbling with FTSE 100 firm Direct Line falling more than seven per cent in the wake of the news.
Chancellor Philip Hammond convened an urgent meeting with the sector's heavy-hitters on Tuesday evening. Attendees included the director general of the Association of British Insurers (ABI), Huw Evans.
"What we need is a new law that allows a new discount rate to be set this year. That's what needs to happen, if the government is going to be able to mitigate some of the impact that are going to be felt by consumers," Evans told City A.M..
The discount rate, which was adjusted from 2.5 per cent – where it had been since 2001 – to -0.75 per cent, is defined by the Damages Act 1996. The reference rate is that of index-linked government bonds and Truss' move reflected the yield investors can currently expect given the lower for longer interest rate environment.
It is not too late to get the law changed and get a proper rate in place that takes into account a wider range of factors and that would allow adjustments to take place going forward.
"There is every opportunity to do that this year. Most obviously through the Prisons and Courts Bill, which was just published last week," said Evans.
Hammond and Evans were joined by economics secretary Simon Kirby and a roll-call of insurance chief executives – including RSA's Stephen Hester, Direct Line's Paul Geddes and Aviva's Mark Wilson – in what was is understood to be a frosty meeting.
"The chancellor is personally committed to trying to find a way forward. That came across very clearly," said Evans.
He demonstrated a degree of personal commitment to try and fix this problem. That's to be welcomed.
I think it's been an uncomfortable few days for the government. But then it should be. Because it took a decision that is without precedent.
"They were warned repeatedly by us privately that there would be a significant impact on customers with immediate effect.
"They may well have been surprised, but they shouldn't have been."