Insurance premiums set to soar after compensation changes

[whitenemesis]

Something to look forward to ..

"Average car insurance premiums could increase by up to £75 a year as a result of a government ruling, industry experts have said."

Insurance premiums set to soar after compensation changes - BBC News

 

[bob6600]

If £75 is a guide, that means over £100 in real terms.

I understand accidents happen but being a clean, safe, claim free diver has no benefits

 

[trapperjohn]

Perhaps HMG will drop the insurance tax to compensate its poor earning tax payers and voters then.

 

[Dryce]

Sometime published numbers don't add up.

So. According to 2015 figures.

The ABI says the average motor insurance policy costs £367

Injury claims make up 51% of the total payout from motor insurance claims.

Lets assume that the £367 excludes IPT.

So that means logically not more than 51% of the average premium is allocated to injury claims. That's being generous to them as presumably there are other costs in the premium other than just claims. Anyway using 51% of the whole premium that's £187.17.

Now these changes to the insurance payouts are stated as being changed by discount that was 2.5% that will become -0.75%.

So that means that £187.17 covered 97.5% of the claim so should really have cost - £191.97 if the original discount of 2.5% wasn't applied.

Now there's a negative discount of 0.75% so that increases that £191.97 to £193.41.

So that would imply that the injury claims portion of the average premium would go up by £193.41 minus £187.17 which is £6.24.

Now let's be fair - if they are excluding IPT from the £367 but including it in the numbers that are being bandied about in the press today then IPT at 10% then that should be added. So that £6.24 increase becomes £6.87 if rounded up.

£6.87 is a whole lot less than £75.

If their other numbers of £1000 for young drivers and £300 for 'older' drivers are treated proportionately to the £75 claimed then this would imply actual increases for these categories should be £91.60 and £27.48 respectively. These are ...... a whole lot less than £1000 and £300.

 

[MikeInWimbledon]

Good calculations....

Sometime published numbers don't add up.

So. According to 2015 figures.
The ABI says the average motor insurance policy costs £367
Injury claims make up 51% of the total payout from motor insurance claims.
Lets assume that the £367 excludes IPT.
So that means logically not more than 51% of the average premium is allocated to injury claims. That's being generous to them as presumably there are other costs in the premium other than just claims. Anyway using 51% of the whole premium that's £187.17.
Now these changes to the insurance payouts are stated as being changed by discount that was 2.5% that will become -0.75%.
So that means that £187.17 covered 97.5% of the claim so should really have cost - £191.97 if the original discount of 2.5% wasn't applied.
Now there's a negative discount of 0.75% so that increases that £191.97 to £193.41.
So that would imply that the injury claims portion of the average premium would go up by £193.41 minus £187.17 which is £6.24.
Now let's be fair - if they are excluding IPT from the £367 but including it in the numbers that are being bandied about in the press today then IPT at 10% then that should be added. So that £6.24 increase becomes £6.87 if rounded up.
£6.87 is a whole lot less than £75.


The only point to add is that administration must take up at least 20%, if not 25% of the annual premium / payout process.

Marketing, advertising, commissions, credit card charges, administration, IT, compliance, legal, financial, claims processing, inspection, QC, accounting, and extraordinary Operational risk costs. (Although I'm sure there's an Insurance expert here who can comment)

 

[st13phil]

Now these changes to the insurance payouts are stated as being changed by discount that was 2.5% that will become -0.75%.

So that means that £187.17 covered 97.5% of the claim so should really have cost - £191.97 if the original discount of 2.5% wasn't applied.

Now there's a negative discount of 0.75% so that increases that £191.97 to £193.41.

So that would imply that the injury claims portion of the average premium would go up by £193.41 minus £187.17 which is £6.24.

I thought the discount rate was a compound annual rate, so for a claimant with an expected time of dependency of (say) 20 years the discount would be 1.025^20, but is now 0.9925^20?

 

[CabrioDave]

I thought the discount rate was a compound annual rate, so for a claimant with an expected time of dependency of (say) 20 years the discount would be 1.025^20, but is now 0.9925^20?

Correct about the compound point. Not sure, though, whether the calculation is that simple. (The injured person needs funds in each year, so does the discount apply at x^1 for the first year, x^2 for the next, and so on?)

If it is applied in that simple way, though, a £1 million payout would have been discounted to (say) £610,000 but will now be raised to £1.16 million. Certainly enough to make a chunky change in premiums!

 

[Charles Morgan]

The annual stream of payments is discounted at the rate for each year, so compensation = sum of PMT x 0.9925 ^ 1 + PMT x 0.9925 ^2 etc.

It's a massive difference, but as the legislation is based upon the risk free rate it's hard to argue with the discount rate, rather the notion that it should be risk free.

 

[Dryce]

If it is applied in that simple way, though, a £1 million payout would have been discounted to (say) £610,000 but will now be raised to £1.16 million. Certainly enough to make a chunky change in premiums!

If it's applied in a simple way to my numbers then it is more like a £174 increase on an average £367 premium. (93% increase over the £187.17 derived from the 51% of the gross).

So to be fair - that is way more than the headline of £75.

There is another figure being quoted as £55 per policy.

I wonder what the impact of this is on the RPI.

 

[Charles Morgan]

Most injury claims are one off - £2000 for whiplash type. These are for serious injury causing requirements for continuing care or loss of income (or both) etc. So the effect will vary between insurers depending on claims experience. It may also hit different customers differently - so premiums may well rise a lot more for the riskiest customers.

 

[fabes]

Perhaps HMG will drop the insurance tax to compensate its poor earning tax payers and voters then.

IPT increases from 10% to 12% this year

 

[fabes]

And there are further changes to small claims court limits for whiplash claims from Oct 2018 which will lead to increased claims and costs as they are pulled out of the portal (the one good thing that effectively rid us of the claims for u industry), so another bizzare backwards step

 

[FirstMerc0]

Most injury claims are one off - £2000 for whiplash type. These are for serious injury causing requirements for continuing care or loss of income (or both) etc. So the effect will vary between insurers depending on claims experience. It may also hit different customers differently - so premiums may well rise a lot more for the riskiest customers.

This is the whole problem with society nowadays - thanks to the ambulance chasing firms, anyone in an accident seems to think it's normal to claim for whiplash regardless of scenario, and it makes the real claims difficult to discern from the dishonest people trying to play the system and make a quick buck.
A friend who's a bus driver was driving his bus when it was hit by another vehicle - 90% of the passengers wanted the company's details to claim for "whiplash"