UK car insurers saw losses of 3.5bn in 2016 because of new compensation rules
Britain’s car insurers suffered combined losses of 3.5bn recently because of controversial new compensation rules for serious injuries, according to a report which predicts further sharp rises in premiums, for young drivers.
Consultancy EY said the brand new Ogden formula concluded in significant underwriting losses for that car insurance policy market in 2016. The unexpectedly deep cut in the Ogden rate, from 2.5% to –0.75%, prompted a furious backlash from insurers who say that it is going to “overcompensate” victims of car crashes or medical errors in hospitals.
Although the modification to the discount rate was announced in February, most insurers reflected the impact on outstanding claims of their 2016 figures.
EY estimates the all inclusive costs on the Ogden rate exchange signal of insurers and reinsurers at 3.5bn. About 2.4bn these losses are actually disclosed at this point, with Admiral one of many worst hit. Its 2016 pretax profits were reduced by 105m, falling by the quarter to 284.3m.
Car insurance in UK hits record high as tax rate on premiums increases
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However, the NHS and also other components of the general public sector including the armed forces are going to take a good bigger hit, of nearly 6bn. The main case settled under the new Ogden rate at the end of March forced an NHS trust to nearly triple its payout with a 10-year-old girl playing cerebral palsy from 3.8m to 9.3m.
UK auto insurance rates hit record highs between January and March, totalling 462bn, as per the Association of British Insurers. Rising claims costs as a result of new Ogden rate along with the boost in insurance premium tax to 12% out of this month could push premiums up by a further 9% in 2017 to 503bn, EY predicts. It will add 28 on the average price of an extensive policy.
Tony Sault, the united kingdom general insurance market lead at EY, said: “Further effects will be felt this year when annual reinsurance protection for large claims come up for renewal. Young drivers certainly must bear the brunt on the increase a result of the disproportionate quantity of larger claims they cause. A fundamental report on Ogden as well as government’s proposed whiplash reforms are increasingly urgent for consumers and has to stop abandoned as a direct consequence in the general election.”
He said there can be some respite for insurers in the event the promised whiplash reforms plus a review of the Ogden methodology materialise.