Huw Evans, director-general of the Association of British Insurers (ABI), today avoided putting a figure on the money insurers will save from an anticipated increase in the personal injury discount rate.
Despite repeated questions from Labour MP David Hanson, Mr Evans said the ABI had not done any calculations and it was “not our job to produce guesswork” that could “cause market dislocation”.
However, Mr Evans told the justice select committee this morning that independent consultants had estimated that the saving for insurers from lower damages awards could be up to £700m per annum if the existing rate of – 0.75% was increased to 1%.
The justice committee was hearing evidence on draft legislation to reform the discount rate at the request of the Ministry of Justice. The government’s reforms are expected to increase the rate to anywhere from 0-1%.
Mr Evans said that if the rate was set at below the figure of 1%, the total savings for the industry would be reduced accordingly.
“We’ve been very honest,” he went on. “We’ve said there’ll be some savings if these reforms are put through, but the point is not to have massive savings to customers, but a healthier system that prevents much bigger increases if the system stays unreformed.”
Mr Evans said any savings from an increased discount rate would be passed onto customers, and the LASPO changes had led to a £1bn cut in motor insurance premiums.
David Johnson, a past president of the Forum of Insurance Lawyers and partner at Weightmans, told the committee that it was not a choice between helping vulnerable people or “abandoning” them.
“Everyone is in agreement that we’re targeting 100% compensation. We want to combine the best of the old and the new, but it must be based on a modern formula.
“The rate is not right. It appears to be over-compensating people and there is no evidence of it under-compensating them.”
The committee also heard from Brett Dixon, president of the Association of Personal Injury Lawyers, who said basing the rate on gilts, rather than a mixed bag of investments, was the best way of ensuring 100% compensation for claimants.
“I don’t see people behaving like lottery winners. Compensation must last them all their lives and the priority is that the money meets their needs. If not, the state picks up the bill.”
Mr Dixon said claimants had put up with the “wrong” discount rate for a “very substantial period of time”, before it was reduced by the previous Lord Chancellor, Liz Truss.
Unlike the ABI, Mr Dixon said the discount rate should not be set by politicians, and the Lord Chancellor should accept the advice of the expert panel.
“Staying with the 100% principle makes 100% sense,” he said. “We would welcome some mechanism to promote change. The problem is that we’ve stayed with the wrong rate for such a long time.”
Lord Keen QC, the government’s justice spokesman in the House of Lords, said he would be “very surprised” if the changes in the way the discount rate was set resulted in many accident victims being under-compensated.
“I expect some will be under-compensated and many will be over-compensated. This is not about reducing the cost of clinical negligence claims, but about fair and reasonable compensation for the victims of negligence.”
Asked whether the government actuary was the best person to chair the panel of experts, Lord Keen replied: “He is an independent person. Someone must have a casting vote and I suggest there is no-one better.
“The Lord Chancellor can’t ignore the advice of the panel and must take account of it, but it is advice. He must make a political decision.”