Cost of catastrophic injury claims pushing up insurance premiums06 Jul 2017

Compensation much higher in UK than rest of EU

Personal injury pay outs seventeen times higher than in some other European countries are forcing up the cost of insurance for drivers, particularly young ones. 

Meeting the long-term care costs of some of those catastrophically injured in road accidents can result in compensation payments of around £10 million in the UK, significantly ahead of Germany (£6 million) and France (£6 million).

In Sweden, compensation might be as little as £0.6 million.

The largest factor in the size of a claim is what proportion of the medical and care costs are met by the state, and how much is the responsibility of the injured party – and hence their insurer.

The differences are highlighted in a European-wide comparison of insurance markets for the RAC Foundation by Nick Starling, the former director of general insurance at the Association of British Insurers.

The study argues that the national differences in levels of compensation are likely to increase now that the government has changed the so-called discount rate.

It is likely to result in insurers having to pay much larger up-front lump sums to fund ongoing care for those most badly hurt on the roads. The report says:

“The UK Government’s own calculations for a young quadriplegic requiring £100,000 a year in care costs is that the lump sum award will increase from £5-6 million to £9 million – up around 60%. The UK Prudential Regulation Authority has estimated that overall claims costs could rise by £2 billion annually.”

The biggest burden of the change is likely to be felt by young drivers in terms of increased premiums, because they already pay the highest amount for cover.

Other reasons why the cost of UK motor insurance tends to be higher than in the rest of Europe include:

  • Markets in other European countries, such as France, are generally more regulated with, for example, limitations on how much premiums can rise and fall
  • UK insurers assess risk primarily on the age and experience of drivers, before taking other things into account, whereas in many other countries the type of vehicle is the starting point
  • In the UK people can start driving at 17. On much of the continent the age is 18 and because accident risk reduces very rapidly with age, UK insurers exposure to claims is higher
  • Third-party insurance is common across continental Europe and is usually cheaper than comprehensive cover which will pay out in more scenarios. But in the UK, comprehensive cover is most common and counter-intuitively those requesting third party only are seen as posing a higher risk and attract a higher premium, even for less perceived cover.

While the report identifies the UK as having high initial premiums for young drivers, it says these can fall rapidly through the system of no-claim discounts. Also, increasingly-common telematics-based insurance offers more affordable cover to young people.

The study says that, overall, the UK has one of the most competitive insurance markets in Europe. An estimated 70% of policies are bought online, predominantly through price-comparison websites.

Throughout Europe, the cost of meeting claims involving uninsured drivers is spread amongst the insured driving population. The proportion of uninsured drivers across Europe is:

  • Italy – 8%
  • Spain – 7%
  • UK – 4%
  • France – 2%
  • Germany – <1%

Steve Gooding, director of the RAC Foundation, said:

“The nation’s 38 million drivers are all too well aware of the high cost of insurance, and while direct comparisons with the rest of Europe are hard to make all the signs are that we pay more for our insurance than our continental cousins.

“One reason is the high pay outs insurers must make when people are badly hurt on the roads. Another is recent hikes in insurance premium tax which now stands at 12%, hitting young drivers particularly hard as they are already paying high premiums.

“The report also points to the culture of whiplash claims as a UK phenomenon, driven by claim handling companies. We were therefore please to hear the commitment in the recent Queen’s Speech to tackling fraudulent claims which load costs back onto responsible drivers.

“Everyone should pay a fair price for insurance, but if people are priced out of the market the danger is they choose to drive uninsured and that’s a risk to us all.”

The report says several common factors are taken into account when determining premiums across Europe, but the weight given to each depends on the underwriting approach:

  • Vehicle group ratings
  • Driver age and occupation
  • Mileage driven
  • Geographical location of the vehicle keeper
  • Where the car is kept overnight
  • Claim record of the driver



Philip Gomm – Head of External Communications – RAC Foundation

020 7747 3445 | 07711 776448 | [email protected] | 020 7389 0601 (ISDN)

Notes to editors:

The RAC Foundation is a transport policy and research organisation that explores the economic, mobility, safety and environmental issues relating to roads and their users. The Foundation publishes independent and authoritative research with which it promotes informed debate and advocates policy in the interest of the responsible motorist.

The RAC Foundation is a registered charity, number 1002705.

All the Foundation’s work is available on its website:

The Nick Starling is available to download and view under embargo:

The changes to the discount rate were set out in a government consultation:

The consultation explains that the discount rate varies depending on the rate of return from money invested in index-linked UK Government stocks: 

“The effect of a change in the discount rate is so pronounced because of the working of the principles of compound interest on payments to be made over potentially very long periods. For example, if £100k is invested in a portfolio with an average annual real return of 2.5%, the portfolio will have a real value of £128k after ten years and £269k after 40 years. Invested in a portfolio with an average annual real return of minus 0.75%, the real value of the £100k will be £93k in ten years and £74k in 40 years. That is, a negative return (with respect to inflation) erodes the real value of the portfolio and the effect is greater the longer the term of the investment. This means that, if the investor needs £100k in 10 years, in real terms, he or she should invest £108k if expected to invest in a portfolio with a minus 0.75% real return. If the investor needs £100k in 40 years, in real terms, he or she should invest £135k at the same real return. The difference in capital requirement is particularly pronounced in times of low interest rates.”

According to modelling by the reinsurance company Swiss Re, awards made to 30-year-old male quadriplegic, who is married with two dependent children and a non-working partner, are as follows:


Award in £m (€m)


10.3 (14.5)


6.25 (8.75)


5.7 (8.0)


2.1 (3.0)


1.25 (1.75)


1.1 (1.6)


0.6 (0.8)

Note: the original calculations were based on euro figures. They have been converted to sterling using the exchange rate at the time of the analysis £1=€1.40.