Shares in UK car and home insurers are lower first thing after the Lord Chancellor raised the discount rate used on personal injury lump-sum compensation claims but left it short of the level the industry had hoped for.
Admiral (ADM) shares are down 1% to £22.52, Direct Line (DLG) shares are down 1.4% to 332p and Hastings (HSTG) shares are down 0.5% to 203p.
The Chancellor today raised the personal injury discount rate - or Ogden rate as it is known - to minus 0.25% from the minus 0.75% set in 2017 but this is well below the level industry insiders were demanding.
Quoted in the Financial Times, general insurance claims director at LV Insurance Martin Millner said today’s change ‘doesn’t go far enough’ in replacing the ‘absurd and fiscally irresponsible’ decision to cut the rate tow minus 0.75% two years ago.
The rate is used to assess how much accident victims should be given as a lump sum to be used over their lifetime if they are seriously injured, for example in a car accident.
The decision to leave the interest rate negative, rather than set a positive rate, is good for accident victims and bad for insurance companies. Because the total amounts involved can be very large, a small change in the discount rate can have a big effect on insurance company profitability.
The insurers had hoped that the rate would be increased to somewhere between zero and 1%. The next review will be ‘within a five year period following this review’ so it looks as though while they may not like it, insurance firms will have to lump it for the next few years.
Car insurers are trying to pass through increases in premiums for the third time in four quarters according to a study by Confused.com and Willis Towers Watson.
Average premiums rose by 3.5% last quarter, well above the rate of inflation, and are set to rise over the course of the year despite the Financial Conduct Authority (FCA) and the Competition & Markets Authority (CMA) both launching an investigation into pricing.
