The U.K. government is bringing forward legislation designed to curb spurious whiplash claims and change how a key discount rate is set.
The changes are seen as likely to cut U.K. motor insurers' claims bills, and the change to the calculation of the personal injury discount, or Ogden, rate has been mooted virtually since the rate was lowered to negative 0.75% in March 2017. The government published draft legislation in September 2017 to change how the rate is set after the cut from the previous level of 2.5% threatened to sharply raise the cost of long-term compensation for insurers as well as Britain's National Health Service.
The discount rate determines the expected return that injured claimants can expect to get from investing their compensation payouts, with a higher rate implying that insurers need to hand over less money when an award is made. Prior to the March 2017 change, the Ogden rate had been at 2.5% since 2001, and the cut to negative prompted insurers to push up motor premiums.
Under the legislation, known as the Civil Liability Bill and set to be introduced in the House of Lords on March 20, the rate will be set with reference to "low risk" rather than "very low risk" investments, which the Ministry of Justice said better reflects the investment habits of claimants. The bill also calls for a review of the rate every three years and an independent panel to advise the Lord Chancellor on setting the rate.
The Civil Liability Bill, which at the time did not include the planned discount rate changes, first came to light in the Queen's Speech on June 21, 2017. Its other major proviso is a reform of claims for whiplash, which the Ministry of Justice would cut the average car insurance premium by £35 a year as insurers passed on around £1 billion in whiplash claim savings.
The bill will set fixed amounts of compensation for whiplash claims and ban the practice of offering to settle whiplash claims without medical evidence.
The bill will have to make its way through both the House of Lords and the House of Commons before it gains Royal Assent and is signed into law. The Ministry of Justice declined to give a time frame for the bill's passage through parliament when asked by S&P Global Market Intelligence, but the Motor Accidents Solicitors' Society revealed in February that ministers had told personal injury lawyers that they were targeting April 2019 for the new legislation to come into force.
Insurers welcomed the news. Association of British Insurers Director General Huw Evans said: "If passed, these proposals would be great news for motorists. People and businesses are paying more for their motor insurance than ever before and we need changes to the law to tackle some of the root causes."
On the discount rate reforms, Ageas SA/NV U.K. CEO Andy Watson said: "On behalf of our customers we welcome that the government is now recognizing a more accurate level of investment risk meaning that we can still provide a fair level of compensation for claimants, while ensuring the preservation of an insurance sector able to deliver this essential service to customers at a competitive price."
He added: "It is important now that the bill progresses quickly, the panel put in place as outlined in the consultation and the discount rate revised accordingly."
There had been concerns that the government would need to collect more evidence to support the planned change to the discount rate setting process, delaying the change. In a Nov. 28, 2017, report scrutinizing the draft discount rate legislation, the House of Commons Justice Committee, which holds the Ministry of Justice to account, called the evidence on claimants' investment behavior "thin" and called for "clear and unambiguous evidence" before the legislation was changed.
But in a response published March 20, the government said that while it would issue a call for further evidence on investment behavior in preparation for the first review of the rate under the new legislation, it believes that its existing evidence "is sufficient to justify changing the law and does not consider that reform of the law should be delayed pending a further evidence gathering exercise."