Drivers set to face huge hikes in insurance after change to payout rules

Ministers are to review controversial changes to compensation payouts set to land drivers with huge insurance hikes.

Motorists will be hit with policy increases of up to £60 a year, rising to £107 annually for riskier younger drivers.

While Justice Secretary Liz Truss has vowed to plough on with plans, today she launched a consultation into how the rates will be set in the future.

A source said she had been “hemmed in” by the current legal framework when she set the rate in February, and is now considering whether this should be set by an independent body.

The insurance sector reacted in fury when Ms Truss announced a shake-up of the “personal injury discount rate” which is used by the courts to work out claims.

Judges currently apply a 2.5 percent discount to compensation payouts for life-threatening injuries to reflect the interest a victim will make on the lump sum when they put it in the bank.

Ms Truss cut this to -0.75 percent which she said was legally necessary to reflect the UK’s low interest rates. This was the first change in the rate since 2001.

The Association of British Insurers estimate that up to 36 million individual and motor insurance policies could face a rise in insurance to pay for the change.

Ms Truss said: “This consultation will consider whether the current framework is fair to both claimants and defendants.

“It will also determine whether there needs to be changes in how the rate is set and whether it should be set by an independent body.”

The consultation will run for six weeks and the Ministry of Justice will meet with representatives of the insurance industry to assess the impact of the rate adjustment.

The -0.75 percent rate will remain in place until the review is concluded and potential changes are put forward.