Car insurance seems to be the favourite amongst lawmakers as they keep updating the rules, making it difficult for the drivers to manage their overall motoring costs. One more blow hit the motor insurance policy holders recently when the government announced a high decrease in the discount rates.
The Lord Chancellor, Ms Truss vehemently reduced the discount rates from 2.5% to minus 0.75%. As the discount rates are the basis to decide the compensation amount for injuries, this reduced rate would result in higher compensation costs for serious injuries. This decision would cost somewhere around £1,000 to motorists that are younger than 22 years of age. On the contrast, it adds £300 extra to the insurance costs of the elderly that age above 65.
According to the Association of British Insurers (ABI), this action also means the NHS would face a £1billon bill for compensation costs. Huw Evans, director general of the ABI, said that “Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK. We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.”
He continued by saying that “To make such a significant change in the rate using a broken formula is reckless in the extreme, and shows an utter disregard for the impact this will have on consumers, businesses and the wider operation of the insurance market. We have repeatedly warned the Government that this could lead to very significant price rises, with younger drivers in particular likely to find it much harder to get affordable insurance.”
The new law would push the compensation costs to a new high and young driver would be the worst hit. It would cost them somewhere around £1,000 extra and thus create a big burden for them. This would also affect the insurance providers, some of which feel the threat of financial losses due to the changes in the law. Direct Line said that its pre-tax profits would be reduced by as much as £230m.
The change in the insurance laws has stirred the entire insurance sector and the Ministry of Justice is expected to commence a consultation to improve the system. They have agreed to bring necessary changes in the early stages to create a minimum damage situation for the drivers and the insurers.
Shay Ramani, the founder of FreePriceCompare.com said, “As the new law pushes insurance costs higher, it becomes all the more important for drivers to shop around and find an insurer that offers huge discounts to cut down the overall cost of car insurance. It is always a better idea to compare insurance costs so as to minimise the driver’s financial burdens.”
To conclude, the new rules will lead to heavy motoring costs for the UK driver and one can only drive less or pay more. Under such circumstances, one of the best practices to minimise the motoring costs is to switch the car insurance provider frequently. By doing so, the drivers can leverage the introductory offers given by the new insurer along with the reduced premiums.