If you suffer a life changing injury or are killed by a third party who is liable, and your case goes to court, and they find that you will get a lump sum in compensation, the courts use a table to help them to calculate how much that lump sum should be. Included in the calculation is a discount rate also known as the Ogden rate. There is an assumption built in to the calculation that you can invest the lump sum and generate an income from the interest on that investment. With interest rates at an all time low the amount of income that can be generated from investing the lump sum is at an all time low and to be fair to injured people of the families who have lost someone in an accident the Government realised that something had to be done to increase the lump sum so that it would continue to be fair compensation. They therefore have cut the rate at which the discount is applied.
The percentage discount rate has been cut from 2.5pc to -0.75pc. This means that lump sum payments will increase by 3.25%. Here’s how it works out assuming the court decides to award £1 million pounds. Previously this would have been discounted to £975,000 but now but now the lump sum paid will be £1,007,500 ie another £32,500.
The discount rate is linked, by law, to the least risky and safest investments such as inflation linked Government bonds. The current rate for a 30 year UK Government bond is just 1.68%. So on the example above previously the person accepting the lump sum payment might have expected to receive an income of £16,380 but now it should be £16,926 ie an extra £546 a year. In practice by carefully balancing risk it might be possible to achieve a higher income than this.
This change mainly effects the NHS (medical negligence claims) and motor insurers. Someone has to pay.
Some motor insurers are more exposed to this increase in compensation than others, depending on the types of drivers and vehicles, that they insure and very few motor insurers are currently making much profit. There is no room for motor insurers to absorb the increased costs and the only place it can come from is increased premiums. This is on top of increases to Insurance Premium Tax and a general hardening of prices that was occurring anyway by insurers needing to get back into profit. Depending on how the insurers decide to deal with increases could mean that “riskier” drivers could pay significantly more. There is an indication that many insurers have just applied a straight percentage increase for everyone, some have taken a more considered approach and have simply included a change in their quotation calculation to make those at greater risk pay more and those at a lower risk pay just a little more. At the end of the day though everyone will pay more and there has never been a better time to shop around.
Motorhomes and camper vans tend to be at lower risk and therefore you premium should not be increased significantly. If it has give us a call on 0800 328 2084 and we will do our best to give you a lower motorhome insurance quotation.