While measures in the Civil Liability Bill should improve claims experience in the UK, the competitiveness of the motor segment will see savings quickly passed to insureds in the form of premium reductions, according to A.M. Best.
Additionally, due to persistent issues with fraud, higher repair costs, and a growing compensation culture the claims environment is likely to remain challenging.
On a positive note, A.M. Best says insurers have welcomed proposed changes to the personal injury compensation system set out in the bill, which entered the House of Commons on 28 June.
The bill reforms how the personal injury discount rate is set and includes measures designed to reduce the number and cost of whiplash claims. However, it has still to receive Royal Assent and the associated reforms are unlikely to be implemented this year.
Key measures outlined in the bill include a tariff of compensation for whiplash claims, a ban on seeking or offering to settle whiplash claims without appropriate medical evidence, and an increase in the small claims track limit for road traffic accident-related personal injury claims to £5,000 and for all other claims to £2,000.
In addition, the bill will change the way the personal injury discount rate is set.
To better reflect actual claimant investment behaviour, the rate will be determined with reference to expected rates of return on a diversified portfolio of low risk investments rather than very low risk investments, as is assumed in the current rate.
The rate will be reviewed shortly after the legislation comes into force and, thereafter, at least every five years.
Proposed changes to the discount rate-setting process follow the reduction in the rate announced by the government in February 2017, from 2.5% to -0.75%.
Many insurers had been incorporating a lower rate into their reserving assumptions, but the industry was surprised by the drop into negative territory.
The change had the greatest impact on companies underwriting UK motor business, A.M. Best says, but other liability classes exposed to bodily injury claims were also affected.
