Although the insurance industry is positive about the amended personal injury discount rate scheduled to come into force, sector whisperings wonder whether the change forms part of Labour’s agenda to lower motor cover costs
By Jon Guy
The insurance industry has welcomed the news that from the middle of next month (January 2024), the new personal injury discount rate (PIDR) for England and Wales will rise to 0.5%.
The government’s recent five-year review has upped the PIDR by 0.75%, as announced in December 2024, which will result in smaller lump sum compensation awards in personal injury cases.
Speaking on this development, International Underwriting Association (IUA) chief executive Dave Matcham said: “The discount rate is a crucial factor to consider for IUA members covering personal injury losses.
“Stability in the rate is vital – both for the purposes of reserving against the liabilities of claims incurred and for pricing future business.
“This new rate of 0.5% will now be fixed for the next five years and aligns England and Wales with rates set separately for Scotland and Northern Ireland.
“There was a statutory deadline of 11 January 2025 for the review and early confirmation of the change is welcome. Companies will now be in a better position to plan for the forthcoming end of year renewal season.”
Alistair Kinley director of policy and government affairs at law firm Clyde and Co added: “The PIDR of 0.5% is designed to ensure that claimants will continue to have sufficient funds to meet their future needs.
“We anticipate that the new rate reflects enhanced long-term investment returns when compared to those in 2019.
“Although the new PIDR will mean that lump sum awards, at the outset, are lower than those using the previous PIDR of -0.25%, the greater investment performance over time should mean claimants realise higher investment gains from which they can draw on over time to meet their ongoing needs.
“The new, higher PIDR means that a greater proportion of needs in future years should be met by this investment return.”
Government influence
However, while there is a lot of positivity over the rise in the PIDR and the benefits it will bring, this will almost certainly come at a cost.
Read: Discount rate decision set to deliver premium decrease for motorists
Read: Briefing – Discount rate may be first true indicator of insurers’ relationship with new government
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In the run up to this year’s general election in July, the Labour party was emphatic over its wish to see the cost of motor insurance fall.
Professional services firm PricewaterhouseCoopers (PWC) predicted that the new rate will see premiums fall on average by £50, but whether this is enough of a drop for the new government is unclear.
What the insurance industry can likely expect is that governmental pressure for action will increase after 11 January 2025 – when the new PIDR comes into force.
Just how prescriptive the government is prepared to be is unclear – but after making some tough decisions in its first Autumn Budget in October 2024, the administration will be keen to offer some positive news to temper the unpopularity of its tax hikes.
Battling the insurance sector for a better deal on behalf of motorists is likely to appeal to the general public, so the PIDR decision may be cited as a key government step in its demand for lower premiums.
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