► 0.5% PIDR rate to replace negative 0.25%
► Competition among insurers to increase in 2025
► Premiums expected to fall by £50 on average
Motorists could see their insurance premiums drop next year. Thanks to a major change in how injury compensation is calculated, the introduction of a positive personal injury discount rate (PIDR) could bring some much-needed relief.
The PIDR is a key factor in calculating compensation pay-outs for claimants. It considers potential investment returns on damages, ultimately affecting how much defendants are required to pay.
The rate is factored into calculating the final settlement amount when determining lump sum compensation for individuals with life-altering injuries
Starting 11 January 2025, a new discount rate of 0.5% will take effect, replacing the previous rate of -0.25%, thanks to improvements in the investment market.
The shift to a positive discount rate could help insurers — especially those offering motor cover — by alleviating some cost pressures. But while insurers may get a breather, they’re still facing significant pressure from rising costs in other areas of the industry, like labour and raw materials.
Drivers set for a £50 car insurance saving, according to experts
The rate change is expected to spark increased competition among insurers, with PwC analysis suggesting premiums could decrease by an average of £50.
According to a report from The Independent, Mohammad Khan, head of general insurance at PwC UK, commented on the positive impact of the change in the discount rate, saying: ‘This change is good news for drivers as it will further intensify the competitiveness of the motor insurance market.
‘Motor insurance premiums have risen by over 20% over the last two years, but the direction of travel has been turning and these amounts are starting to reduce.’
This change will be a welcome relief for motorists who have faced steep insurance premiums over the past year, with the average premium standing at £612.
In announcing the new rate, the government’s Lord Chancellor Shabana Mahmood commented: ‘I’ve carefully considered the need to strike a balance between avoiding significant under-compensation for claimants while also preventing excessive over-compensation.’
She added, ‘Finding the right balance across all claimants is a complex and challenging task, and the expert input from the consultees in this review has been invaluable.’
‘It is very important to recognise that the personal injury discount rate will always be a relatively blunt instrument, since no one choice of rate can ever ensure that all claimants receive exactly their full compensation.’
The PIDR in England and Wales is reviewed every five years.