Businesses can expect fleet insurance premiums to increase - perhaps by 10% - following what the Association of British Insurers called a “crazy” decision to change the way personal injury compensation payouts were calculated.
When victims of life-changing injuries accept lump sum compensation payments, the actual amount they receive is adjusted according to the interest they can expect to earn by investing the money.
In finalising the compensation amount, courts apply a calculation called the Discount Rate - with the percentage linked in law to returns on the lowest risk investments.
The decision by Lord Chancellor Elizabeth Truss to lower the Discount Rate from 2.5% to
-0.75% was made in accordance with the law. However, the Ministry of Justice admitted that the decision would trigger a rise in compensation payments thus leading to increases in insurance premiums - including those for fleets.
Huw Evans, director general of the Association of British Insurers, said: “Cutting the discount rate to -0.75% from 2.5% is a crazy decision. Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK.”