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 complicated payment system allows for interest payments on the capital lump sum but these have been dropping so less is earned over the lifetime of the compensation.
Now the interest rates have gone down it is expected claimants will negotiate higher compensation to offset the losses and this is why the premiums will have to rise to cover the difference.