The ABI’s director general has written a letter to David Gauke MP to object to the ‘misleading’ document
The ABI has hit out at the government over the discount rate changes, which will lead to insurer’s having to pump in millions of extra pounds into reserving.
Director general Huw Evans has written a letter to Lord Chancellor David Gauke MP to “object in the strongest possible terms” to the government plans to change the discount rate from -0.75% to -0.25%.
This is despite insurers expecting it to be between 0% and 1%.
Evans attacked the government’s impact assessment, released earlier this week to Parliament which detailed why the -0.25% rate was reached, as “misleading and wholly disingenuous” while claiming it “completely misrepresents insurance market pricing”.
He later stated that he was “very surprised indeed” that Gauke would sign “such a flawed document”.
Evans complains on three issues. They are:
- No mention of the MoJ’s guidance in September 2017 where the government said it expected a new rate to be set at 0%-1%. Evans said this led to major insurers using this as gospel and using this in their financial reports, coming at a cost.
- No mention of the government’s intention of reviewing the rate after the initial announcement of the rate change when it was announced in February 2017.
- Due to the above points, some insurers have settled personal injury cases at the rate of 0%-1%.
Evans then concluded that he felt it was “wholly inappropriate” for the government to compare the new Discount Rate (-0.25%) to the -0.75% rate, by which it had estimated a saving to insurers of £230-£320m.
However, while Parliament suggested the rate may change to between 0% and 1%, it was never officially stated that it would change to that.
In the September 2017 guidance to the Stock Market that Evans mentioned, a former lord chancellor said that, given the new methodology, “the rate might be in the region of 0% to 1%.”
And then, in November 2017, two months later, the current justice minister, Lord Keen said that the figures were ”not intended as an estimate of what the rate will be”.