Car insurance claims discount rate legislation

Bill for young drivers

7 September 2017

The AA has welcomed the government's announcement that it will put new legislation before Parliament (7 September) which could see the so-called discount (or Ogden) rate for car insurance claims reset.

This rate, which had been unchanged at 2.5% since 2000, was reduced to minus 0.75% in March this year. It affects the amount of compensation that is paid by insurers to those suffering injury in a car crash. The rate cut cost UK insurers hundreds of millions of pounds in higher claims costs and additional reserves to meet future claims.

The discount rate change particularly affects young drivers, who are involved in more frequent and more costly injury claims, and who have seen their premiums rise at a much sharper rate than the average. The AA has expressed concern that unaffordable premiums are responsible for the recent increase in young uninsured drivers.

Michael Lloyd, director of AA Insurance, gave the decision a cautious welcome, but said: "The new rate must be adjusted to set a realistic and fair rate for both victims and insurers.

"But there's no guarantee that the draft legislation being put before parliament will be enacted. And the new rate won't be retrospective, so current claims will be paid under the current legislation.

"Over the second quarter of 2017, the Shoparound premium according to the AA British Insurance Premium Index rose by 8.3%. Young drivers aged 17 to 22, who already pay more for their insurance than anyone else, saw their premiums jump by 10.6% to an average of £1,771, and by more than 22% in 12 months.

"The premium for a new teenage driver can be an eye-watering £3,000 or more.

"We predicted in July this year that as a consequence of this entirely avoidable government-prompted change, plus a doubling of Insurance Premium Tax over the past couple of years, more young drivers would risk illegal ways of getting behind the wheel. Sadly, that has come to pass.

"We need decisive action to help young drivers take to the road safely and legally. Hence we have repeatedly called for IPT to be abolished for young drivers during their first two years of driving, assuming they keep their licence clean, and also for all young drivers who adopt telematics or black box insurance, which monitors their driving behaviour.

"I look forward to seeing how the detail of the new legislation, if it is passed, will work in practice."