The average car insurance premiums could go up as much as £75 a year because of a new government ruling, according to industry experts.
A brand new formula has been developed, that changes the way insurers calculate compensation for those who suffer long-term injuries. The Association of British Insurers are calling the decision ‘crazy’ but the Ministry of Justice insist they had no choice under the current law, but they would consult possible changes.
Shares in insurance companies fell massively, as the new change is likely to dig into their profits, potentially costing them millions of pounds.
The change is due to take place on the 20th March.
Understanding compensation – CamTrak – Accident Camera
Those who have suffered an accident will often receive compensation in a lump sum, which in serious cases is supposed to support them for the rest of their lives. But someone who is receiving that sum can actually increase it, by investing it, and getting a cash return.
So in order to be fair to insurance companies, the payout is reduced accordingly.
But the Ministry of Justice has announced that they will reduce the discount rate from 2.5% to minus 0.75%.That will result in a larger sum of money being paid out by the insurer.
The change was ordered as the formula assumes the victim would invest their money into government bonds, and by the time inflation is taken into account, real returns on these bonds have become negative.
Who does it affect the most?
The most affected will be young drivers, under the age of 22 and older drivers who are over the age of 65. These two age groups could see their insurance go up as much as £1000 a year.
CamTrak – Accident Camera
One way in which you might be able to save a few pennies on your insurance is by having a dash cam in your car. For more information on any of our accident cameras, get in touch with us today.