A leading UK insurer has outlined exactly the cost of the government’s decision to cut the discount rate on personal injury settlements. Allianz UK announced that operating profits in the 2017 year increased 26% to £121m – but stated the profit figure would have been £22m higher but for last year’s reform.

Last February, then-lord chancellor Liz Truss elected to alter the rate for deducting personal injury damages from 2.5% to -0.75%, requiring insurers to top up settlements. 

At the time, insurers branded the decision ‘crazy’, and the Allianz figures appear to show that firms in the sector have taken a hit.

Chief executive Jon Dye said providing seriously injured people with a ‘fair and appropriate’ level of compensation was the right thing to do, but the government needed to act quickly to protect consumer interests.

‘The sharp increase in the cost of settling personal injury claims is contributing significantly to rising premiums for customers,’ said Dye. ‘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.’

Dye said the firm saw an ‘exceptional’ number of large losses in the third quarter of 2017 which came to a total of £46m, but he said these were unlikely to be repeated.

Revenue grew 2.1% year-on-year in the UK to £2.14bn, while the firm also completed a strategic joint venture partnership with fellow insurer LV=.

The government is considering whether to introduce legislation after consulting on a potential new framework for calculating the discount rate.

Progress may stall after a justice select committee report at the end of last year said any changes should be based on a greater collection of evidence.