In the wake of the Ministry of Justice setting a new Discount Rate of minus 0.25%, Director General of the Association of British Insurers, Huw Evans, has written a letter to Lord Chancellor David Gauke to object to the misleading nature of the Government’s Impact Assessment (IA).
The letter, which can be seen in full here, describes the document as “misleading and wholly disingenuous” before going on to say it “completely misrepresents insurance market pricing and reserving in response to the setting of the previous minus 0.75% rate and omits to mention Ministerial decisions since 2017 designed to ensure the minus 0.75% rate was not widely adopted. I am very surprised indeed you chose to sign such a flawed document.”
The letter lays out the steps taken by Government to guide both insurers and lawyers to assume a rate of between 0 and 1% and indeed to start to use it in practice. The ABI has already warned that the unexpected decision to set a new rate of minus 0.25% will add costs to the system rather than saving money, putting further pressure on premiums.
The letter concludes:
“It is therefore wholly inappropriate that the IA issued to Parliament repeatedly compares the new [Discount Rate] of minus 0.25% to the previous rate of minus 0.75% and estimates a ‘saving’ to insurers of £230 to £320 million. Your department can be in no doubt this is not an accurate reflection of the current market situation because it has worked so hard with HM Treasury over the last 2.5 years to ensure it never became so. No such saving exists to be passed onto customers. I would urge you to submit an accurate and more balanced IA to Parliament before the new Statutory Instrument comes into force on August 5th.”
You can find out more about the background to the Discount Rate and what the change means for consumers here.