Motor insurance premiums for English and Welsh drivers are due to fall after the Government Actuary today announced the results of her review into the personal injury discount rate. The rate will change from -0.25% to +0.5%. This follows a similar move in Scotland and Northern Ireland in September.
The statutory interest rate, reviewed and set by the government once every five years, is calculated based on the investment returns a claimant could generate from investing a compensation payment over a lifetime. The interest rate environment has changed dramatically since 2019, meaning claimants should see the same returns now from investing a smaller lump sum as they would have done five years ago with a larger sum.
The rate impacts expected losses for insurance companies and, therefore, the level at which they set premiums for their wider customer base. Actuaries from PwC estimate premiums will decrease by an average of £50 for drivers in England and Wales.
Mohammad Khan, head of general insurance, PwC UK said: "The increase of the personal injury discount rate by 0.75% to 0.5% in England and Wales - matching the personal injury discount rate announced earlier this year for Scotland and Northern Ireland - should bring some consistency to aspects of how motor insurance premiums and payouts are calculated across the UK. This change is good news for drivers as it will further intensify the competitiveness of the motor insurance market. Motor insurance premiums have risen by over 20% over the last two years but the direction of travel has been turning and these amounts are starting to reduce. We estimate premium rates will fall by 5% - about £50 for the average motor insurance policy. As for the insurance companies, they had expected a change of this scale and will already be pricing it into their pricing.”
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