The impact assessment published by the Ministry of Justice on the new discount rate is “misleading and wholly disingenuous” in predicting savings for insurers, the chief executive of the Association of British Insurers has told the Lord Chancellor.
The impact assessment said insurers would save £230-320m as a result of changing the current -0.75% rate to -0.25% – a figure lower than the industry had been expecting.
Objecting “in the strongest possible terms” to the document, Huw Evans said it “completely misrepresents insurance market pricing and reserving” that followed the -0.75% rate being set in February 2017.
In a letter to Mr Gauke published today, he argued that it omitted to mention ministerial decisions since 2017 “designed to ensure” that the -0.75% rate was not widely adopted.
This included the ministry’s guidance to the stock market in September 2017 that it expected a new rate to be set at 0-1%.
“This is a material fact because – as is a matter of public record – many large insurance companies used this guidance for their reserving and pricing decisions from this point on, enabling insurance premiums to fall during the passage of the Civil Liability Act and ahead of the setting of a new rate.”
There was also no mention of the earlier statement in February 2017 by the Chancellor of the Exchequer, Philip Hammond, of the government’s intention to “swiftly review” the framework that led to Liz Truss, as Lord Chancellor, setting the -0.75% rate.
“This public statement had the desired effect of ensuring that lawyers did not adopt the -0.75% rate in practice,” Mr Evans said.
As a result, he said, premiums have fallen and the majority of personal injury cases have settled at a rate between 0% and 1%, “as the government intended”.
Mr Evans said this meant the impact assessment was wrong to compare the new rate with the current one and estimate a resulting saving.
“Your department can be in no doubt this is not an accurate reflection of the current market situation because it has worked hard with HM Treasury of the last 2.5 years to ensure it never became so.
“No such saving exists to be passed onto consumers.”
He urged Mr Gauke to submit and “accurate and more balanced” impact assessment to Parliament before the new rate comes into force on 5 August.