After the Lord Chancellors parade?

After the Lord Chancellors decision yesterday to cut the personal injury discount rate to -0.75% I am left wondering what the collective noun for the group of insurer CEO’s who are beating a path to the Chancellors door today ? Not sure but you can assume that they are angry and in my view rightly so. Setting the rate at -0.75% is a surprise given that the Ogden tables have figures at -1% and -0.5% but not -0.75% ( figure that ?!) Yet the decision itself is hardly a surprise. Since 2001 there have been various attempts in the Courts to challenge the discount rate and the Association of Personal Injury Lawyers have always been at the head of the queue.

Industry lobbying of the Lord Chancellor has failed to stop her going way beyond what most thought was fair so the industry needs to take another look at is collective influence. Unless there is a massive change coming from today’s meeting then the discount rate will be added to IPT as immediate substantial issues where Government has ignored industry protestations. The unprepared or not enough prepared will no doubt be very vocal. The ones very prepared and very well reserved will be much less so, safe in the knowledge that pessimism was the right call.

Insurers anger should be nothing compared to buyers of vehicle and casualty insurance who as yet have probably not appreciated the cost implications of the change in the discount rate. It would appear reasonable to think that the market is looking at 5 – 10% rate increase on top of general claims inflation rate need. Who will get hit hardest? Commercial buyers exposed to obvious catastrophic personal injury such as Construction or Haulage may well be hit the worst and expect different levels of rate depending on exposure.

What then of brokers? Transparency will be back on the radar again as buyers understand the difference between gross and net premiums and where IPT is applied. This has to produce a squeeze on earnings for some. That’s alongside insurers starting to squeeze distribution costs. Don’t forget there is also the Insurance Distribution Directive to consider in the harmonisation of sales practices across Europe.

Solidarity amongst insurers is essential and given that the Lord Chancellor herself has said there will be further consultation around a fairer framework there should be cause for optimism in discussions. It does have a feel of passing the ball along the line and maybe the ball is now in Philip Hammonds hands faced with a ruck of insurer CEO’s ! Let’s hope there is a full understanding of the rules of when a ruck is formed!

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