Airmic has welcomed the proposed changes to the personal injury discount rate, as announced on 7 September by the Ministry of Justice.
“We welcome the proposed reforms as a much fairer outcome for insurers and policyholders,” chief executive, John Ludlow, said. “The changes reflect a more realistic view of investment potential, and the proposal to review the rate more regularly makes good business sense. We are grateful that the government has taken swift action to consult with the insurance industry and act on its advice.”
The draft legislation, unveiled last month by Lord Chancellor David Lidington, means the rate would be set by reference to “low risk” rather than “very low risk” investments as at present. The rate could be set between 0% and 1%, the MoJ has said.
Lord Chancellor David Lidington
The discount rate is used to determine lump sum compensation to claimants who have suffered life-changing injuries. The MoJ announced in February that the rate would fall from 2.5% to -0.75%. The timing and scale of the change received strong criticism from the insurance industry, supported by Airmic, whose members had expressed concern about the impact on insurance premiums.
Mr Ludlow warned that today’s announcement must serve as a reminder to the government of the need for fully-consulted and coordinated policy in the future. “Our members remain concerned about the combined effect of recent policy decisions, including the series of insurance premium tax (IPT) rises. Insurance programmes are a core tenet of any business strategy but in a low growth environment, even small price rises can make it a challenge for our members to justify insurance premiums to their business,” he said.
John Ludlow - CEO, Airmic
He added: “While we are pleased with today’s outcome, we once again urge the government to ensure that any future legislative or fiscal changes are fully consulted and the potential for cumulative impact on the insurance industry and UK plc is considered.”
Further reading: Law firm DWF have produced a succinct summary and analysis of the latest developments. Read more about it here.