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Law360, London (April 3, 2020, 2:33 PM BST ) A government change to the rate at which major injury compensation is calculated has triggered a 5.5% rise in motor premiums in a year, a pricing index company said Friday, warning there could be more price hikes during the COVID-19 crisis.
Consumer Intelligence said a change in the so-called Ogden discount rate last summer has meant insurers now have to pay more in major injury claims. That has pushed premiums up by 2.8% in the past three months, or 5.5% since the same period in 2019.
Premiums could be pushed still higher as insurers are hammered by investment losses from the COVID-19 crisis, the data insights company said. As cuts to interest rates and investment losses affect insurers as a result of the coronavirus crisis, it is possible that premiums could continue to climb as insurers try to offset costs to the business elsewhere.
"Motor pricing is currently being steered by rising claims costs and the continued knock-on effect of the Ogden changes," John Blevins, pricing expert at Consumer Intelligence, said.
"However, current events could lead to further premium increases, with the financial hit insurers will be taking to their investment businesses," he added.
Blevins said the decision by the Bank of England to revise interest rates to 0.1% had put pressure on bottom lines at insurers. "This may manifest itself as increased insurance premiums in the coming weeks and months," he added. "Time will tell."
The Ogden rate is a calculation designed to settle in one lump sum costs including medical bills and lost income over the remaining period of a claimant's life.
The Ministry of Justice announced it was raising the Ogden rate, also known as the discount rate, from minus 0.75% to minus 0.25% in July last year. The change meant insurers would have to pay less on large claims, normally in the millions, for those suffering severe injuries as a result of accidents.
But insurers had already preemptively released money from their claims reserves in expectation of a rate change to 0%, which meant they then suffered a one-off hit in 2019 as they were forced to put money back.
--Editing by Ed Harris.
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