The seemingly endless rise in auto insurance prices could be coming to a standstill thanks to proposed government changes.
The new proposals will see a big U-turn in the rate at which payments for serious accident victims are calculated, known as the Ogden rate.
Ogden’s rate will be changed next year in an attempt to provide a “more fair” system.
How does the Ogden tax work?
Set by the government, the Ogden rate is the amount awarded to victims with life-changing injuries after an accident.
The rate had been set at 2.5%, which meant that for every £1,000 awarded to a victim in a claim, the insurer would pay £975, with the other 2.5% or the Ogden rate being expected the claimant to earn through investment interest. . This would give them the full payment due to them.
In March 2017, the rate was lowered to -0.75%, or in a monetary sense, insurers would now have to pay victims £1,007.50 per £1,000 payment.
It was this increase in payments that helped drive auto insurance prices to all-time highs* in the last 12 months.
What is Ogden’s latest rate change?
While no specific date has been announced, the Justice Ministry has confirmed that they are reviewing the rules and Ogden’s rate is expected to be set at 1% from next year.
The changes have been welcomed by insurers as they will reduce the amount they are required to pay.
Huw Evans of the Association of British Insurers commented on the proposed changes:
“This is a welcome reform proposal to provide a personal injury discount rate that is fairer to claimants, customers and taxpayers alike.”
“If implemented, it will help alleviate some of the cost pressures on auto and liability insurance in a way that will only benefit customers.”
What do these changes mean for drivers?
The last time the rates changed meant an increase in auto insurance premiums, as insurers passed the extra costs on to drivers.
Now that payments to victims are expected to decline, it makes sense that the savings would be passed on to drivers by lowering the total cost of their coverage.
The changes aren’t expected to take effect until next year, so it may be some time before these savings are actually seen in the price of annual insurance.
How will it affect accident victims?
While this is potentially good news for drivers, serious accident victims left with life-changing injuries could be affected.
Instead of receiving the full amount of the payment awarded, victims will now once again be expected to invest their money for profit.
While these people are supposed to be able to comfortably make up the difference, many have commented on the unfairness of the new rate.
Speaking to The Mirror, the Chairman of the Personal Injury Lawyers Association, Brett Dixon said:
“Someone with a life-changing injury, such as brain damage or a spinal cord injury, cannot afford to take any chances with the way their compensation is invested.”
“The last thing people with devastating injuries think about when they’re in a hospital is their insurance premiums. They think about how they’ll cope. Insurers say a higher discount rate will benefit customers through their premiums It has no benefit if they are seriously injured and forced to take chances with the compensation they so desperately need.”
4 ways to reduce the cost of your car insurance
While you wait for rate changes to lower the cost of your coverage, there are several ways you can save money right now.
Reduce your risk
While there are some details you can’t change, there are some things you can do to reduce the risk you pose. Something as simple as changing your job title from office manager to office administrator could save you money.
You should also take into account the vehicle you drive. When choosing a car, you should try to get one that is safer, slower, and less flashy.
increase your excess
Increasing the amount you are willing to pay if you are in an accident will lower the price of your premium. This is a great way to lower your total cost, but remember to never accept an excess that you can’t afford.
Make sure your car is safe
Whether it’s adding an immobilizer to your car or locking it in a garage overnight, increasing the security of your vehicle will make it less attractive to thieves and lower the cost of your coverage.
Be sure to tell your insurer about your enhanced security, as some providers will offer discounts even before you renew.
Pay only for the coverage you need
If you’re just borrowing a car or just need to drive for a few days, an annual insurance policy could be a big waste of money.
A term policy offers the same level of coverage and financial protection as annual insurance at a fraction of the price.
You get the coverage you want without paying for insurance you don’t need. You can get a variety of quotes in minutes and compare prices to save time and money.