The AA has welcomed the Government’s announcement that it will put new legislation before Parliament which could see the so-called Discount or ‘Ogden’ rate re-set.
This rate which had been unchanged at 2.5% since 2000 was reduced to minus 0.75% in March.
The change particularly affected young drivers who are involved in more frequent and more costly injury claims and who have seen their premiums rise at a much sharper rate than average. The AA has expressed concern that unaffordable premiums are responsible for the recent increase in young, uninsured drivers.
Michael Lloyd, the AA’s director of insurance gave the decision a cautious welcome but said: “The new rate must be adjusted to set a realistic and fair rate for both victims and insurers.
“This draft legislation is being put before parliament today, but there’s no guarantee that it will be enacted. And the new rate won’t be retrospective so current claims will continue to be paid under the current legislation.
“Premiums have increased sharply for everyone.
“Over the second quarter of 2017, the average quoted Shoparound premium according to the AA’s British Insurance Premium Index, rose by 8.3%. Young drivers (17-22) – who already pay more for their insurance than anyone else, saw their premiums jump by 10.6% to an average of £1,771 and by more than 22% in 12 months.
“The premium for a new teenage driver can be an eye-watering £3,000 or more.
“We predicted in July that as a consequence of these entirely avoidable government-prompted increases including a doubling of Insurance Premium Tax over the past couple of years, more young drivers would risk illegal ways of getting behind the wheel and sadly, that has come to pass.
“We need decisive action to help young drivers take to the road safely and legally and we have repeatedly called for IPT to be abolished for young drivers during their first two years of driving, assuming they keep their licence clean, and for all young drivers who adopt telematics or ‘black box’ insurance which monitors their driving behaviour.
“I look forward to seeing how the detail of the new legislation, if it is passed, will work in practice.”
Commenting on the announcement Colin Read in the insurance team at international law firm Pinsent Masons said:“The changes in February 2017 created significant disquiet within the insurance industry. A flurry of insurer-ministerial meetings followed that decision and reflected how the original discount rate had proved an unexpected surprise to insurers, many of whom were in the middle of reporting annual results. Today’s revised figure is likely to bring the Ogden rate within a range originally anticipated before February’s changes. It is to be hoped that a fairer system, with less of a “shock” value, could follow from the 3 yearly review process set out today.”
Peter Walmsley, partner with leading international law firm Clyde & Co, said: "Common sense looks to have prevailed. Insurers will be relieved that the discount rate looks set to rise. The last cut to the rate, which was unexpected, was calculated using a poor methodology and led insurance premiums to rise. The new approach better reflects claimants’ investment decisions, although a rate of 0% would, we believe, still be too low. Above all, insurers will at least have more clarity on how the rate is calculated and how and when it is reviewed."
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