Roadmap To Tackle Insurance Costs Targets Accident Victims

The Association of British Insurers (ABI) has set out a ten-point roadmap to tackle rising insurance costs. One of these points of action, once again, targets victims of road traffic accidents and the other, if successful, would have a significant impact on all personal injury claimants.

Whiplash reforms

Point 7 of the ABI’s road map is to continue whiplash reform. In 2021, the Official Injury Claims portal was created, designed to be used by litigants in person and imposing a tariff system of compensation for soft-tissue injuries. Claimants were left without legal representation and burdened with a low-value tariff system of compensation for soft-tissue injuries. This did not allow for the fact that a claimant may have other injuries which would normally attract a higher level of compensation.

The Supreme Court is currently considering whether these ‘mixed injury’ claims should be accounted for in a different way but meanwhile, the ABI suggests that whiplash-type reforms should now also be introduced for what they describe as ‘similar injuries’ and where will that end?

Personal Injury Discount Rate (PIDR)

Point 6 of the ABI’s plan of action is to reduce the impact of the PIDR. The PIDR is an important mechanism in fulfilling the longstanding common law principle that when someone is wrongfully injured, they receive full damages, including for their future financial needs.

It is used to calculate how much money an insurance company should pay to a person who has suffered life-changing injuries. However, because the compensation for future losses is paid in a lump sum upfront which can be invested when it is received, the amount is adjusted to account for the interest they would expect to earn. This is where the discount rate becomes relevant.

The Lord Chancellor sets the discount rate which must be reviewed every five years and it must be reviewed this year.  Currently, the discount rate is minus 0.25%, a negative rate which has the effect of increasing the amount of compensation that insurers must pay. The ABI is arguing that this figure should be “re-evaluated to better reflect the real returns accumulated by low-risk investors of lump sums”. However, this approach fails to fully appreciate that compensation paid to a claimant for future loss of earnings or future care and assistance must retain its real-terms value to secure someone’s future which has changed through no fault of their own.

If the ABI is successful in its argument, this will have a significant impact on the compensation paid by all insurers to claimants, including public bodies.

Will these changes, if successful, result in lower insurance premiums as promised?

In 2021, the Government estimated that the savings made by insurance companies because of the whiplash reforms would lead to a reduction in motor insurance premiums by around £35 per policy and yet motor insurance premiums have risen significantly since then. It appears to be a ‘win, win’ situation for the Insurance Industry and another attack on accident victims.