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Personal injury rule changes blamed for Direct Line’s insurance policy price hike

By May 11, 2017January 29th, 2021Personal Injury

Changes to laws around personal injury and compensation for accidents has seemingly prompted the insurance firm Direct Line to increase the price of its policies by almost 7% in the early months of this year.

Insurers were taken by surprise in February when the government announced that it would cut the discount rate via which calculations are made to decide what scale of pay outs should be made to people who suffer severe injuries as a result of road accidents.

The change, introduced by the Ministry of Justice (MoJ), was not welcomed by the country’s leading car insurance companies and was widely expected to lead to increases in premiums being paid by consumers throughout the country.

Despite insisting that the change to the discount rate would not have major implications, Direct Line increased its car insurance premiums by close to 7% in the first three months of 2017 as compared with the same period of the previous year.

The discount rate, otherwise known as the Ogden Rate, is the fundamental mechanism used by the courts to decide precisely how much money should be paid to car insurance policy holders who suffer severe and life-changing injuries in road accidents.

Changes to the rate were apparently made in light of the fact that recipients of a lump sum from insurance companies can no longer expect to accrue interest amounts at the same pace as they would have done in the past because interest rates today are so much lower than they once were.

The MoJ has said that “the law makes clear that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life”.

“Compensation awards using the rate should put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs,” the MoJ’s statements on the subject went on.

In March of this year, Direct Line reported a £175 million profit fall for its full financial year, with the changes to the discount rate handed much of the blame for that downturn in performance.

However, statements made at the time by the Direct Line Group insisted that its business remains well-placed in what it described as being a “market disrupted by the reduction in the discount rate”.

Vanessa Smith

Author Vanessa Smith

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