Ministers today handed Britain’s insurance sector a £2bn boost after deciding to row back on a controversial decision to change the way personal injury claims are calculated.
Lord Chancellor David Lidington unveiled a number of changes to the Ogden discount rate, which determines how much is paid to claimants.
Included in the government proposals is to move the rate to between zero and one per cent.
The adjustment follows the February decision slash the rate from 2.5 per cent to minus 0.75 per cent. Billions of pounds were wiped off the profits of Britain’s insurers as a result.
Accountants from PwC estimated the government’s change of heart could boost the reserves of insurance firms by as much as £2bn.
Stephen Hester, the boss of insurer RSA, welcomed ministers’ proposals. He said:
If passed, the benefits will be felt by all our customers, helping to stop the rot of steep rises in premiums, which are having a disproportionate impact on costs for motorists, businesses and the NHS.
Motor insurers, which hit hard by the decision earlier in the year, said drivers could expect premiums to fall as a result.
LV, which recently agreed a tie-up with Allianz to strengthen its UK position, committed to pass on “100 per cent” of the savings.
Meanwhile, David Stevens, the boss of Admiral said: “We expect a reduction in premiums across the market as a result of the proposed changes.”
PwC general insurance leader Mohammad Khan said young drivers could see annual premiums fall as much as £500.
Huw Evans, the director general of the Association of British Insurers said the reforms would “better reflect” the amount owed to claimants.
If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers.