Average car insurance premiums could increase by up to £75 a year as a result of a government ruling, industry experts have said.
A new formula for calculating compensation payments for those who suffer long-term injuries has been announced by the Ministry of Justice.
But the Association of British Insurers (ABI) called the decision “crazy”.
The Ministry of Justice said it had no choice under the current law, and said it would consult on possible changes.
Shares in insurance companies fell, with some saying that profits would be hit by millions of pounds.
The change is due to take effect from 20 March.
How compensation works
Accident victims are paid compensation in a single lump sum, which in serious cases is supposed to support them for the rest of their lives.
But someone who is awarded, say £100,000, can actually increase that amount by investing it, and getting a cash return.
So to be fair to insurance companies, the payout is reduced accordingly.
For the past 16 years the discount rate, as it is called, has been set 2.5%. So a compensation payment of £100,000, for a notional one year award, would have been cut to £97,500.
Now the Ministry of Justice has decided to reduce the discount rate from 2.5% to minus 0.75%.
That would put the compensation payment at £100,750 – meaning more money for the victim, but a higher cost for the insurer.
The change was ordered because the formula assumes the victim were to invest his or her money in government bonds.
By the time inflation is taken into account, real returns on such bonds have become negative.
‘£1,000 increase’
Reducing the discount rate to minus 0.75% was a “crazy decision”, said Huw Evans, director-general of the Association of British Insurers (ABI).
“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,” he said.
“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.”
Image copyright Getty Images Image caption The change will mean accident victims are likely to receive higher pay-outs
Experts said higher insurance premiums could cost drivers under the age of 22 up to £1,000 a year.
“We anticipate an increase of £50-£75 on an average comprehensive motor insurance policy, with higher increases for younger and older drivers – potentially up to £1,000 for younger drivers, and a rise of up to £300 for older drivers,” said Mohammad Khan, UK general insurance leader at accountancy firm PwC.
Older drivers includes anyone over the age of 65.
However, accident victims are set to benefit as they will receive higher pay-outs.
Lawyers who had campaigned in favour of the changes welcomed the news.
“People already coping with the most severe injuries have been deprived of the help and care they need for years,” said the Association of Personal Injury Lawyers.
Consultation
A number of insurance companies said their finances would be hit as a result of the changes.
Direct Line said it expected its pre-tax profits to be reduced by as much as £230m.
Where negligence claims are made against the NHS, the bill could rise by £1bn, the Treasury said.
But the NHS Litigation Authority will be compensated for any extra cost, the government promised.
The Ministry of Justice will now launch a consultation on how the system can be made fairer.
It said it would bring forward any necessary legislation “at an early stage”.
In the meantime, it has made it clear it had no choice but to change the discount rate, according to the existing law.
“The law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants,” said Liz Truss, the Lord Chancellor and Justice Secretary.
“I am clear that this is the only legally acceptable rate I can set.”
Ansvar Launch New Charity Insurance Products
Charity Protect has been developed for smaller or newly set-up charities, community interest companies social enterprises and not-for-profit organisations, that don’t carry out work abroad and have an annual income or turnover of up to £100,000.
The policy provides cover for public and products liability as well as various activities including fundraising events for up to 500 people, office and admin work and attendance of exhibitions, conferences and meetings to name a few. There are also other sections of cover which can be added if required, such as Legal Expenses, All Risks and Trustees and Directors indemnity.
Charity Protect Plus is their product for larger charities with an annual income or turnover of up to £1,500,000.
Like its sister product, this policy provides cover for public and products liability and a number of different activities including fundraising events for up to 1000 people, office and admin work and attendance of trade shows, seminars, the sales of second hand goods and other activities which benefit the charity. Again, there are additional sections that can be added to the policy including Professional Indemnity, Money and Employer’s Liability.
Call us on 01772 555585 for more information.
NMU Launch new Computer Cyber Insurance
Cyber security has become a risk to all businesses
Today, virtually all businesses collect and store personal information about customers, employees and others. The frequency of data breaches – the theft, loss or mistaken release of private information, is on the rise. But data breaches aren’t just a big business problem; small and medium-sized businesses with fewer data security resources are particularly vulnerable.
Whilst data losses for small to medium-sized businesses may not make the headlines, the potential financial cost and reputational impact of a cyber incident can be crippling. Firms such as accountants and lawyers might be perceived to hold more sensitive data, but all businesses could be at risk from a cyber attack or data breach by hackers, viruses or errant employees. 74%* of small businesses having experienced a security breach.
In response to the growing demand for cyber insurance, NMU has added a computer, data and cyber policy to its suite of products. Specifically designed for small to medium-sized businesses, Computer Cyber Insurance offers broad coverage for cyber risks. Hardware (including portables) and data corruption cover provides protection for assets, whilst data breach expense, cyber crime, cyber liability and cyber event – loss of business income cover responds to cyber risks.
Policy benefits include:
Please get in touch with us 01772 555585 to discuss how this could affect your business and the protection available.
Professional Indemnity Insurance in Construction Contracts
What is Professional Indemnity Insurance?
PI provides cover for liabilities arising from professional negligence. Any consultant or contractor / sub-contractor (collectively, “Insureds”) with design responsibility or whose duties include a substantial design element will usually be contractually required to purchase PI. It may also provide cover for a range of other exposures:
PI cover is usually expected to be maintained throughout the entire period of the Insured’s potential liability under a contract or appointment. The level of cover required will generally be specified within the contract or appointment. The Insured will usually be required to produce evidence that PI of the required level is in place. Whilst the client will want the security of knowing there is adequate insurance to cover any claim which it might ultimately have, it is equally in the interests of the Insured to ensure adequate PI is in place from the outset. Not only would a failure to do so leave it in breach of contract (exposing it to a claim for damages), but, most significantly, inadequate insurance leaves it potentially exposed to uninsured claims.
Workmanship
PI is intended to cover negligent professional services. It will not generally cover defective workmanship or manual operations, unless specifically included within the definition of insured services and activities. In fact, such activities will often be the subject of express exclusions under a PI policy.
This is a fundamental feature of PI. There can be a fine distinction between workmanship and design when ascertaining what has caused a particular defect. Particularly in design and build situations, the contractor must bear in mind that, unless expressly provided for in its policy, pure workmanship issues for which it may be liable will not be covered.
Standard of care
This is the degree of care and caution that an Insured must exercise under its contract. This sets a benchmark for the quality of services which the Insured must provide.
The standard of care will either be ‘reasonable skill and care’, or otherwise ‘fitness for purpose’. The former sets a lower benchmark and requires the use of only reasonable skill and care when performing services. Fitness for purpose, on the other hand, means that, once completed, the project will be fit for its intended use. This is a higher standard because the Insured effectively guarantees that its design will be suitable for the project’s intended use.
Importantly, an Insured which agrees to a fitness for purpose obligation may have difficulties recovering under its PI policy, even if it has acted negligently. Some PI policies will expressly exclude all cover on a project where a fitness for purpose obligation is imposed. With that in mind in particular, Insureds should be very careful before signing up to such an onerous standard of care.
Onerous contract terms
As with all commercial arrangements, strength of bargaining position plays a key role when negotiating contracts. Important and influential clients will often seek to impose onerous contractual requirements in recognition of wider commercial opportunities.
PII policies will often exclude from cover losses arising from onerous contract terms to the extent the associated liability exceeds what would otherwise have been the party’s liability at law. The rationale behind that is that whilst an Insured can contract on whatever commercial terms it likes, Insurers should not be required to indemnify it for liabilities flowing from such consequent voluntary assumption of risk.
A common example of this is contractual Liquidated and Ascertained Damages (“LADs”), which are a common feature of construction contracts. These are a purely contractual remedy, not being a measure of actual loss or damage. An Insured’s liability for LADs is not typically covered under PI policies.
Novation
Novation agreements are common in construction projects. A novation is a tripartite agreement by which an existing contract between A and B is discharged and a new contract is made between A and C, usually on the same terms as the first.
For example, a developer will commonly engage an architect to assist at planning and / or tender stage. If entering into a design and build arrangement, the contract may require that the architect (and potentially other members of the developer’s professional team) is novated to the design and build contractor – i.e. the contractor will enter into a direct appointment with the architect, supplanting the former contract between the architect and developer. The architect will then, as a result, take on responsibility to the design and build contractor for its design, including for work already undertaken for the developer (depending upon the precise wording of the novation). The design and build contractor takes on ultimate design liability to the developer.
PI policies will often require design and build contractors, as a condition to cover being provided, to take reasonable steps to satisfy themselves of the capabilities of the novated consultant and the adequacy of the design for which they take on liability. This can require interrogation of the design, potentially through an independent third party consultant.
Collateral warranties
Defective design of an Insured could cause different losses to parties with differing interests in a construction project. A collateral warranty is a contract between a party with an interest in the project and a separate party involved in the project’s design, management or construction. The Insured usually warrants to the interested third party that it has complied with its appointment or contract, giving that third party a direct contractual route to recovery against it in the event of a claim.
PI policies can include strict requirements in relation to collateral warranties. They will often extend cover to collateral warranties only where the effect of the warranty is not to make the Insured liable to any greater degree than would otherwise have been the case under its original appointment. The contractual / statutory limitation period during which the Insured may be liable for any breach of its contractual obligations is a good example of this issue in practice. The warranty should not have the effect of extending the limitation period beyond that which would otherwise apply to the contract.
Notification
As with all liability covers, PI policies usually include strict obligations to notify insurers if and when a claim or circumstance arises. Given the fast-moving and often contentious nature of construction projects, Insured parties should ensure they are familiar with the precise notification requirements under their policy and that they at all times comply with them.
A particular feature of construction contracts is Adjudication, which is a short-form dispute resolution mechanism specific to the construction industry. This process operates in extremely tight timescales, and can produce a binding decision within as little as 28 days. PI policies will often (necessarily) contain substantially shortened notification requirements where a Notice of Adjudication is received. Insureds should pay particular attention to those, as they will need to act quickly – often as a condition to cover being provided under their policy.
Credit:
Stephen McLellan – Associate
DAC Beachcroft LLP
Car Insurance Premiums set to rise
Average car insurance premiums could increase by up to £75 a year as a result of a government ruling, industry experts have said.
A new formula for calculating compensation payments for those who suffer long-term injuries has been announced by the Ministry of Justice.
But the Association of British Insurers (ABI) called the decision “crazy”.
The Ministry of Justice said it had no choice under the current law, and said it would consult on possible changes.
Shares in insurance companies fell, with some saying that profits would be hit by millions of pounds.
The change is due to take effect from 20 March.
How compensation works
Accident victims are paid compensation in a single lump sum, which in serious cases is supposed to support them for the rest of their lives.
But someone who is awarded, say £100,000, can actually increase that amount by investing it, and getting a cash return.
So to be fair to insurance companies, the payout is reduced accordingly.
For the past 16 years the discount rate, as it is called, has been set 2.5%. So a compensation payment of £100,000, for a notional one year award, would have been cut to £97,500.
Now the Ministry of Justice has decided to reduce the discount rate from 2.5% to minus 0.75%.
That would put the compensation payment at £100,750 – meaning more money for the victim, but a higher cost for the insurer.
The change was ordered because the formula assumes the victim were to invest his or her money in government bonds.
By the time inflation is taken into account, real returns on such bonds have become negative.
‘£1,000 increase’
Reducing the discount rate to minus 0.75% was a “crazy decision”, said Huw Evans, director-general of the Association of British Insurers (ABI).
“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,” he said.
“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.”
Image copyright Getty Images Image caption The change will mean accident victims are likely to receive higher pay-outs
Experts said higher insurance premiums could cost drivers under the age of 22 up to £1,000 a year.
“We anticipate an increase of £50-£75 on an average comprehensive motor insurance policy, with higher increases for younger and older drivers – potentially up to £1,000 for younger drivers, and a rise of up to £300 for older drivers,” said Mohammad Khan, UK general insurance leader at accountancy firm PwC.
Older drivers includes anyone over the age of 65.
However, accident victims are set to benefit as they will receive higher pay-outs.
Lawyers who had campaigned in favour of the changes welcomed the news.
“People already coping with the most severe injuries have been deprived of the help and care they need for years,” said the Association of Personal Injury Lawyers.
Consultation
A number of insurance companies said their finances would be hit as a result of the changes.
Direct Line said it expected its pre-tax profits to be reduced by as much as £230m.
Where negligence claims are made against the NHS, the bill could rise by £1bn, the Treasury said.
But the NHS Litigation Authority will be compensated for any extra cost, the government promised.
The Ministry of Justice will now launch a consultation on how the system can be made fairer.
It said it would bring forward any necessary legislation “at an early stage”.
In the meantime, it has made it clear it had no choice but to change the discount rate, according to the existing law.
“The law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants,” said Liz Truss, the Lord Chancellor and Justice Secretary.
“I am clear that this is the only legally acceptable rate I can set.”
Garratts sponsoring PNE
Big Sam Allardyce, ex England manager, and Gary Brazil lead out Preston North End in 1986/87 wearing the seasons kit sponsored by Garratts Insurance Brokers.
BIBA says increase in IPT will hit JAMs and is outrageous
Over the past 15 months, policyholders have already seen an increase of 66% in the Insurance Premium Tax (IPT) they pay – this further increase to 12% in this regressive tax is outrageous and is a tax on protection which will hit everyone and especially those ‘just about managing’. We believe that this increase is contrary to the stated policy of HM Revenue and Customs “that IPT should make the required contribution to HM Government revenue while minimising the effect on the take up of insurance”. This increase comes at a time when both motor and home insurance premiums are rising and our fear is that many of those who most need it will avoid taking up insurance and be unable to afford the protection they need.
Chartered Insurance Broker status renewed
When we were awarded the Chartered status in 2012, there were less than 100 firms in the UK with the sought after accreditation. Whilst the numbers have risen it is still the benchmark of quality in our profession.
We are delighted to confirm that our Chartered status has been renewed for the next 12 months and the Chartered Insurance Institute confirms “Chartered titles are jealously guarded by professional bodies and are not awarded lightly… The title Chartered Insurance Brokers is a public declaration that the advice given by your firm:
Danny Garratt leads out Preston North End
Having won the shirt sponsors competition, Danny Garratt lead the two sides out onto the pitch at the Preston North End vs Huddersfield Town Championship fixture on Wednesday 19th October in front of almost 13,000 fans.
The evening was thoroughly enjoyable, including meeting the manager and players and a full stadium tour. The evening finished to everyone’s satisfaction as North End won 3-1.
Insurance Institute of Preston and Blackpool Annual Dinner
Some of the Garratts team enjoying a wonderful evening at Ribby Hall with our very own president John Grindley.
Axa’s response to EU Referendum result