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Blog: There is a cost to caring, but it is a cost worth paying

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There is a cost to caring, but it is a cost worth paying
Deborah Evans | 28 Feb 2017

Concerned about rising insurance premiums? Hearing rumours in the press about the ‘discount rate’ and injury claims potentially inflating premiums and wondering what they are talking about?

Well, to put it simply, if you are involved in a horrific car crash through no fault of your own, and you are left with life changing injuries such as paraplegia or quadraplegia, you will be entitled to compensation. Rightly so – your life will never be the same again – you may need ongoing physiotherapy or rehabilitation, you may need your property adapting for a wheelchair, you may need carers to look after you, and you may never be able to work again. That’s what insurance is for – the many pay to look after the few.

The lump sum compensation you receive is designed to be sufficient for what you need – no more, no less. As you are likely to spend it over many years, it is recognised that your compensation will be boosted by bank interest. To counteract this, a percentage is deducted by the insurer from your compensation to reflect what you will earn on your investments. This percentage is the discount rate.

So that’s the principle, but what about the practice? The discount rate had been set at too high a rate – it is a historic figure from a time gone by that has no relevance in the current economy. It had not been revisited for years and had led to those most seriously injured being undercompensated - not getting the amount of damages they deserve and - more importantly – need.

Getting the discount rate right is of huge importance to those with the most severe of injuries – those needing lifelong care. This is a tiny minority of people and hardly a drain on the public purse. If the boot had been on the other foot, and inflation was soaring, insurers would be demanding the rate be increased so that injured people were not overcompensated and they could save a bit more.

But inflation is not soaring - it is as flat as a pancake. Returns that could have been earnt on gilts and investments have been slashed. Rates obviously should go down as well as up, but until now there has been a reluctance by the Government to reduce the rate, and clearly there has been stiff opposition from the Association of British Insurers (ABI). Now the Lord Chancellor has announced that the rate will go down, the insurers, and indeed the government, will have to pay out more.

This is not ‘barking mad’ as some would imply. It is about fairness to injured people, rather than reviewing rates only when it increases the insurers’ advantage. We take out car insurance so that the most seriously injured people on our roads get the care they deserve and are not left short changed and do not run out of money. There is a cost to caring, but it is a cost worth paying.

Past blog entries

Future reform to the bringing of clinical negligence claims?, 26 Jun 2017
Decisions to come in 2017, 06 Jan 2017
Claims Management Companies – the Dragon that Needs Slaying, 19 Dec 2016
Personal injury reform: Back to the dark ages , 23 Nov 2016
If the NHS was an airline, we'd never dare to fly, 03 Oct 2016
Car insurance premiums - a matter of trust?, 31 Aug 2016
New Government, new opportunity?, 11 Aug 2016
Let's mention the good news in the NHSLA annual report, 29 Jul 2016

About this blog

Deborah Evans

I'm Deborah Evans, APIL's Chief Executive Officer. I shall be using this blog to keep you informed about campaining and political work carried out by APIL.