The cost of motor cover could be set to fall by around £50 on average, actuaries have estimated, after a change to a key rate in England and Wales which helps to set injury compensation payouts.
When victims of life-changing injuries accept lump sum compensation, the rate is applied when calculating the payout.
The personal injury discount rate (PIDR) is used to help calculate how much defendants have to pay in damages to claimants and takes into account the potential returns that victims could expect to receive from their money over time from investing the cash.
The move to a positive discount rate could help to ease some cost pressures on insurers, such as those providing motor cover, although rising cost pressures such as labour and raw materials remain.
Actuaries from PwC have estimated that premiums could decrease by an average of £50, with the rate change helping to intensify competition in the motor insurance market.
Mohammad Khan, head of general insurance, PwC UK, said: “This change is good news for drivers as it will further intensify the competitiveness of the motor insurance market.
“Motor insurance premiums have risen by over 20% over the last two years but the direction of travel has been turning and these amounts are starting to reduce.”
The PIDR in England and Wales is reviewed every five years.
“We and our members firmly believe in full and fair compensation for claimants.
“However, the Lord Chancellor’s approach embeds significant caution into the calculation which could lead to over-compensation. This could have an adverse impact on all premium-paying customers, particularly young drivers for whom costs are typically higher, and the taxpayer.”
An index from the ABI recently found the average motor insurance premium was £612 between July and September, which was 2% lower than in April to June but 9%, or around £50, higher than in the third quarter of 2023.
The typical cost of motor cover fell by around £10 in the third quarter of this year compared with the previous three months. It marked the second quarterly fall in a row.
“Achieving the appropriate balance between these aims across all claimants is an extremely complex and difficult exercise, and one in which the expert analyses of the consultees to the review have been invaluable.
“It is very important to recognise that the personal injury discount rate will always be a relatively blunt instrument, since no one choice of rate can ever ensure that all claimants receive exactly their full compensation.
“When setting this rate, it is inevitable that some degree of over- or under-compensation of claimants will occur in individual cases.”
