The government are causing a disruption in the insurance industry by making changes to how much the insurers will have to contribute to personal injury compensation claims.
The Ministry of Justice has lowered the rate from 2.5% to 0.75%. This is the percentage that is applied to work out the lump sum compensation payouts. It certainly was unexpected to fall so low.
The impact of such news of the government’s action to the personal injury sector has caused shares to fall harshly in Admiral and Direct Line, both insurance companies in the UK. Since Monday morning, shares had fallen more than 8% and 4% respectively for Admiral and Direct Line.
Although, the insurance industry expected the Ministry of Justice to drop the rate, it was anticipated to remain above the 1% level according to Reuters. The move is regarded as unwise by The Association of British Insurers.
The Association of British Insurers criticises the change as being irresponsible, and particularly feel that the government are seemingly ignoring how it will affect the insurance market and those that depend on assurance. A reference has also been made to the way the calculation are carried out which is currently not seen as effective.
“Personal injury claims will have an adverse impact to the insurance sector.”
Mr Khan of PricewaterhouseCoopers, in the insurance sector has mentioned that the change will have a negative impact on motor insurance and likely to increase premiums considerably.
A concern raised by Simon McCulloch form the website comparethemarket.com is that drivers will pay the increase from the rate change and it will end up with personal injury solicitors, who supported the move. Yet on the other hand, this level of contempt was not observed when the upper limit of general damages was significantly raised, which created barriers for motorists to claim for their injuries.Read about George Osborne's reform plans
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