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Another result of low interest rates - car insurance set to rise.

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Another consequence of low interest and gilt rates:

http://www.bbc.co.uk/news/business-39101829

Quote

 

When the victim of an accident is awarded compensation in a lump sum, the discount rate reduces their payout.

This is to make up for the extra money they could make by investing that lump sum over many years.

The Ministry of Justice has decided to reduce the discount rate from 2.5% to minus 0.75%.

This is because the formula is based on gilt yields, or the interest rate on government bonds.

By the time inflation is taken into account, real returns on such bonds have become negative.

 

 

 

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Last year my daughter's car insurance as a new driver was slightly under a grand. Now with one year's no-claims it is slightly over a grand. I think the insurance companies already can't make money on investments therefore cash-cowing the motorist because they can.

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1 minute ago, Funn3r said:

Last year my daughter's car insurance as a new driver was slightly under a grand. Now with one year's no-claims it is slightly over a grand. I think the insurance companies already can't make money on investments therefore cash-cowing the motorist because they can.

I wish. Just paid £2,500 for my son !!

Insurance tax is pernicious.

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If you are young, with savings and renting low interest rates are not your friend.  I heard someone say once in Church "I bought when rates were 15%"- sadly I didn't get a chance to tell them how lucky they were.

(Buying when rates is high, is obviously good as it is easier to save for a deposit, prices are almost a one way bet, mortgage rates likewise and if you buying from a distressed seller, life is so much easier at 15% than 2%).

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It's getting to the point where the cost of owning, running and taxing a car is just too great. People will just stop having them - or go back to having one car per house.

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Does anyone have the figures that would justify this rise?

I received money from an insurance company after an accident (a lump sum). Guessing that this only lump sums "awarded" by the courts and the vast majority of payments are agreed out of court (as mine was as I was too injured to fight them further).

" 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. "

It just doesn't add up?

 

 

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1 hour ago, Errol said:

It's getting to the point where the cost of owning, running and taxing a car is just too great. People will just stop having them - or go back to having one car per house.

Small wonder that budget brand Dacia are doing so well. 

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The point in this is not that rates are low per say, but that (thanks to the govt's. FLS scheme) the interest paid to savers is now guaranteed to be less than inflation.

So if a lump sum paid to an accident victim can no longer be invested to keep up with inflation, then they need a bigger lump sum.

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4 hours ago, Errol said:

It's getting to the point where the cost of owning, running and taxing a car is just too great. People will just stop having them - or go back to having one car per house.

No. It's never been cheaper. 

 

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34 minutes ago, Habeas Domus said:

The point in this is not that rates are low per say, but that (thanks to the govt's. FLS scheme) the interest paid to savers is now guaranteed to be less than inflation.

So if a lump sum paid to an accident victim can no longer be invested to keep up with inflation, then they need a bigger lump sum.

Nothing much to do with FLS or even BoE.

Euro bond rates are even more deeply negative, Yen 10 yrs are pegged at 0% and so on. 

UK govt. yields are simply a function of a world drowning in excess savings

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I'm forty this year and the insurance on my bmw is less than £1 a day.  That's nothing for the associated risks.

A twenty year old me, the way I used to drive i'd consider  £2,500 a bargain. 

My motorcycle insurance of £181 on a gsxr1000 is simply too cheap to meter. First bike in 2001 a gsxr600k1 cost me  £1,500 to insure. Risk is priced in IMO

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2 hours ago, Habeas Domus said:

The point in this is not that rates are low per say, but that (thanks to the govt's. FLS scheme) the interest paid to savers is now guaranteed to be less than inflation.

So if a lump sum paid to an accident victim can no longer be invested to keep up with inflation, then they need a bigger lump sum.

Yes, but how many accident victims and how does that justify a possibly large raise in policy prices?

 

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This cant be true.Mrs May said she was going to do everything she could for for jim jams or whatever.Hard working just managing folk.So far she has let insurance rocket and kept Carnage in place so food prices and fuel are going up fast thanks to the pound.

Massive squeeze on living standards ahead.

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16 minutes ago, Flopsy said:

Yes, but how many accident victims and how does that justify a possibly large raise in policy prices?

 

Its critical illness cover i.e. if yu need care after an accident.

Like retirement annuities, low rates mean the price of the insurance policy to give you xyzK/year has tripled.

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26 minutes ago, longtomsilver said:

I'm forty this year and the insurance on my bmw is less than £1 a day.  That's nothing for the associated risks.

A twenty year old me, the way I used to drive i'd consider  £2,500 a bargain. 

My motorcycle insurance of £181 on a gsxr1000 is simply too cheap to meter. First bike in 2001 a gsxr600k1 cost me  £1,500 to insure. Risk is priced in IMO

Not sure that entirely true.

A quick look a tthe local paper shows most motoring accidents are under 25 or over 75.

OAPS insurance is till very cheap.

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15 minutes ago, Flopsy said:

Yes, but how many accident victims and how does that justify a possibly large raise in policy prices?

 

A change in the discount rate can have profound impact on the capital requirement, if the payment is required for a prolonged period. 

If an accident causes serious injury to an 18 year old who will require life long care, then the size of the award required to pay for that will be substantial and because of the duration of funding required, highly sensitive to the discount rate applied. 

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11 hours ago, TheCountOfNowhere said:

They're taking the **** now.

Indeed.

Where's  the extra to make up for the loss in value of the compensation for working all or most of one's life.

 

Quote

Average car insurance premiums could increase by up to £75 a year as a result of a government ruling, industry experts have said.

Another money gougers 'r us scam just like the energy companies and all the rest.

Edited by billybong

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18 hours ago, iamnumerate said:

If you are young, with savings and renting low interest rates are not your friend.  I heard someone say once in Church "I bought when rates were 15%"- sadly I didn't get a chance to tell them how lucky they were.

(Buying when rates is high, is obviously good as it is easier to save for a deposit, prices are almost a one way bet, mortgage rates likewise and if you buying from a distressed seller, life is so much easier at 15% than 2%).

 

Yes, this is something that people simply don't seem to get.  Low interest rates are only your friend if you bought at a time when prices were lower and interest rates were higher.

 

If you buy into the housing market with a mortgage at a time of high prices and low rates, you are taking on a large capital debt.  It may seem affordable to service the repayments because interest rates are currently low, but the period of repayment is typically around 20-25 years.  When the rates go up, you are in trouble.  That debt isn't adjusted to take account of more expensive interest repayments.  Making matters worse, most people seem to get taken in by the 'low repayments' of 2-year fixes which are invariably front loaded and by the time all costs are taken into account, you have made little impact on reducing the principal.

 

All that low interest rates do is artifically increase the price of property by enticing people to borrow unrealistic amounts of money.  Yet you get cretins marvelling at how low rates make houses 'affordable'.

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1 hour ago, Sour Mash said:

 

Yes, this is something that people simply don't seem to get.  Low interest rates are only your friend if you bought at a time when prices were lower and interest rates were higher.

 

If you buy into the housing market with a mortgage at a time of high prices and low rates, you are taking on a large capital debt.  It may seem affordable to service the repayments because interest rates are currently low, but the period of repayment is typically around 20-25 years.  When the rates go up, you are in trouble.  That debt isn't adjusted to take account of more expensive interest repayments.  Making matters worse, most people seem to get taken in by the 'low repayments' of 2-year fixes which are invariably front loaded and by the time all costs are taken into account, you have made little impact on reducing the principal.

 

All that low interest rates do is artifically increase the price of property by enticing people to borrow unrealistic amounts of money.  Yet you get cretins marvelling at how low rates make houses 'affordable'.

A mortgage calculator and looking at prices in the past make it clear to people who realize it.

For interest rates the absolute rate is not important - the change since you bought is important, which will cause problems for many people if we ever have rates of 2%+ again.

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I had my comp car taken off me two years ago...I haven't bought one and don't miss it.  They are more costly and more bother than people admit...the mindset is 'I need a car'...but do you really need one...quite likely not and walking, cycling, bus, train, taxi, hire cars...all work out just fine.

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19 hours ago, Habeas Domus said:

The point in this is not that rates are low per say, but that (thanks to the govt's. FLS scheme) the interest paid to savers is now guaranteed to be less than inflation.

So if a lump sum paid to an accident victim can no longer be invested to keep up with inflation, then they need a bigger lump sum.

Surely an insurance company could always offer to pay the  required sum each year? Someone like Aviva isn't going to disappear, but now they have to  pay a lump sum sufficient to pay an annuity on - 0.75% p.a. interest assumption. Why can't they pay GBP 50,000 a year say instead  of GBP 2 million lump  sum? What happens if the victim dies of a non-related illness within a couple of years? Their family inherits a massive windfall. Is that moral?

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