Car insurance premiums have been on the rise, causing concern among policyholders and industry experts alike. According to Pete Allchorne, president of the Forum of Insurance Lawyers and partner at DAC Beachcroft, this surge can be attributed to several pressing factors that insurers are grappling with.
Cost of claims
Allchorne highlights that one of the key contributors to the increase in premiums is the escalating cost of claims. “The rise in car insurance premiums can be attributed to the numerous pressures insurers are currently facing,” he states. He points out that inflation plays a role, but technological advancements also drive up expenses. “For example, an innocuous bump can result in the need to replace bumpers with sensors – insurance premiums therefore need to account for this possibility.”
The reinsurance market
The strain on the reinsurance market further compounds the issue. “The fact that the reinsurance market has suffered from a period of reduced capacity is problematic,” Allchorne explains. Insurers are facing reduced capacity in obtaining reinsurance, forcing them to finance larger portions of motor insurance claims.
The personal injury discount rate
Moreover, Allchorne identifies the personal injury discount rate as another factor exacerbating the situation. “The problem is likely also being amplified by the personal injury discount rate,” he notes. In England & Wales, the current negative rate significantly inflates the financial implications of severe injury cases, adding millions to insurers’ expenses.
Allchorne underscores the importance of the impending review of the personal injury discount rate by the Lord Chancellor in England & Wales. “The Lord Chancellor will shortly start the review of the personal injury discount rate in England & Wales,” he reveals.
He expresses hope that this review will address the various layers of cautiousness incorporated into the previous assessment. “It is to be hoped that the many levels of prudence baked into the last review are addressed as part of this review, meaning that the rate increases and the pressure on insurers is reduced as a result.”
As the review looms, stakeholders eagerly await its outcomes, anticipating measures that could potentially alleviate the mounting pressure on car insurance premiums.
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