In this article, we seek to discuss the profit margins of insurers since the ‘government’s decision to cut the discount rate on personal injury settlements’,[i] in February of 2018, when the then Lord Chancellor, Liz Truss, changed the personal injury discount rate for lump sum damages awards to (-)0.75% from 2.5%.
Last week, Allianz announced that its operating profit for 2017 increased by 26% to £121 million, stating that figures would have been ‘£22m higher but for the change in the discount rate’[ii]. Profits, hypothetically could have been 18% greater if the discount rate had remained the same as it had for 16 years previous.
Jon Dye, Chief Executive of Allianz, stated that providing compensation that was ‘fair and appropriate’ is the correct approach. He went on to warn that:
‘The sharp increase in the cost of settling personal injury claims is contributing significantly to rising premiums for customers. The pressure on insurers to pass on this cost to the customer can be removed by an appropriate government response. The implementation of a framework that delivers a fair outcome and brings greater clarity and certainty to the market is urgently needed.’[iii]
Similarly, Direct Line Group, this week, reported profits for the year ending 2017 of £610.9 million, equating to an increase of 51.6% on 2016. Group Chief Executive, Paul Geddes, said:
‘2017 is the fifth successive year in which we have delivered a strong financial performance. We have seen significant growth in our direct own brand policies as more customers respond positively to the many improvements we have made to the business’.
Responding to muted celebratory reactions over positive financial performance in 2017, Samantha Hemsley, National Head of Serious Injury and Clinical Negligence teams, suggested that:
’Insurers like Allianz – who despite their griping still enjoyed a 26% increase in profits to £121m this year - could have put money aside for the inevitability of a discount rate increase.’
We are still awaiting Governmental progress on the implementation of a new discount rate, which is expected to rise to a percentage between 0% and 1%. Both claimant and defendant representatives assure that further reforms to the basis upon which the rate is calculated, are necessary.
[i] ‘Discount rate change cost us £22m in profits, says insurer’ (February 2018 Law Gazette) https://www.lawgazette.co.uk/news/discount-rate-change-cost-us-22m-in-profits-says-insurer/5064911.article
[ii] ‘Discount rate disaster? Direct Line profits up £200m a year’ (February 2018 Law Gazette) https://www.lawgazette.co.uk/news/discount-rate-disaster-direct-line-profits-up-200m-in-a-year/5065007.article
[iii] Ibid 1