The Association of British Insurers (ABI) has slammed the UK government for how it went about setting the new personal injury discount rate.
ABI director general Huw Evans wrote to justice minister and lord chancellor David Gauke in response to the release of the government’s discount rate impact assessment, which explained why it was set at -0.25%, despite many insurers believing it would fall somewhere between 0% and 1%.
The impact assessment is “misleading and wholly disingenuous”, according to Evans, and “completely misrepresents insurance market pricing and reserving” in response to the setting of the previous -0.75% rate.
It also omits to mention ministerial decisions since 2017 designed to ensure the -0.75% discount rate rate was not widely adopted. “I am very surprised indeed you chose to sign such a flawed document.” Evans wrote.
Evans went on to describe as “wholly inappropriate” to estimate a potential saving to insurers from the rate reduction of between £230 million and £320 million.
“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 over the last 2.5 years to ensure it never became so. No such saving exists to be passed onto customers.”
Evans concluded: “I would urge you to submit an accurate and more balanced impact assessment to Parliament before the new statutory instrument comes into force on August 5th.”
The new -0.25% rate will be in place for up to five years. An expert panel will conduct the next review.
The discount rate change follows a review as provided in the Civil Liability Act. It was previously set at -0.75 in 2017.
The Civil Liability Act 2018 mandated that claimants must be treated as ‘low risk’ investors, and that a review of the current discount rate be carried out with several factors in mind, including actual returns available to and investments of damages made by investors.
A consultation on the discount rate, giving interested parties the opportunity to inform government thinking, closed at the end of January.