Airmic has expressed concern about the impact on commercial policyholders of the reduction in the Ogden rate announced by the Ministry of Justice (MoJ) on Monday. The association also called on policymakers to avoid further damaging the industry through additional tax rises this year.
Deputy CEO Julia Graham commented: “Airmic supports the need for the discount rate to reflect a fair compensation system, but we are deeply concerned about the timing and scale of the change announced yesterday and the impact on businesses. Not only has the industry not been appropriately consulted, the decision is based on a formula in desperate need of reform.”
Ms Graham noted that yesterday’s announcement came just four months before a significant rise in insurance premium tax (IPT) comes into force: “In a challenging market for insurers, the cumulative effect of these changes will inevitability feed through into price rises for policyholders. The impact won’t be felt overnight but slow-burn issues can be more damaging in the long run as they are less visible.”
Ms Graham called on policymakers to consult more widely and to reconsider its IPT strategy: “The pattern we are seeing is that far-reaching decisions that will ultimately impact the end buyer are being made in isolation. We urge policymakers to take a holistic view of how these changes add up and, in light of yesterday’s announcement, we ask the Chancellor to refrain from further IPT rises this year.”
She added: “In a low growth environment, it can be a challenge for our members to justify insurance premiums to their business, and even a small impact on price could have a disproportionately negative impact on insurance purchase.”
The Ogden rate refers to a discount rate used to determine lump sum compensation to claimants who have suffered life-changing injuries. The MoJ announced yesterday that the rate will fall from 2.5% to - 0.75%, a much larger change than expected by the industry.
The IPT is set to rise from 10% to 12% this June, as announced by the Chancellor in the Autumn Statement.