CALLS have been made for a review of the compensation system, as it emerged motorists face record insurance hikes of almost £50 this year amid an “unprecedented” rise in claim costs.

Drivers in Scotland have been hit by some of the steepest quarterly rises in the cost of car insurance of any part of the UK.

Average motor premiums have gone up by £48 compared with this time last year, hitting a new record high of £484 according to the Association of British Insurers’ Motor Premium Tracker. This amounts to an 11 per cent increase, around four times the rate of inflation, and the biggest year on year rise since the ABI began tracking premiums for private cars in 2012.

The ABI says the rapid increase follows what it called a "crazy" government reform which increases payouts for personal injury victims.

The Ministry of Justice cut the personal injury discount rate – a calculation used to determine lump sum compensation to claimants who have suffered life-changing injuries - to minus 0.75 per cent from 2.5 per cent in March. The discount change welcomed by personal injury lawyers, centres on the way courts award lump sum payments to people suffering personal injuries and is now the lowest in any advanced economy.

Glasgow Times:

Scots who pay the least on average for car insurance of motorists anywhere in the UK, had been expected to pay between £50 and £75 extra in annual premiums, according to accountants PwC, with hikes of up to £1,000 for younger Scots drivers aged 18 to 22 and £300 for motorists aged over 65..

Confused.com's latest car insurance price index shows that nearly all drivers across Scotland have seen some of the highest regional quarterly percentage rises within the UK.

Between April and June, prices in the Highlands & Islands, for example, were 13 per cent higher than the previous three-month period - the highest quarterly rise experienced anywhere in the UK. This put an extra £74 on the average annual comprehensive premium, which now stands at £668.

Glasgow Times:

Over the same three months, drivers in the east and north east of the country have seen costs go up 12%, adding an extra £67 to premiums to take the average to £635. And those in the Borders have had hikes of 11%, or £61, bringing average premiums there to £608. Across the UK motorists were typically paying just eight per cent more.

The ABI has also said the hikes are also down to the Insurance Premium Tax (IPT) - an indirect levy on general insurance premiums in the United Kingdom - also went up from 10% to 12% on June 1.

Neil Greig, policy and research director of IAM RoadSmart said that the Westminster government "can help hard pressed law abiding drivers" by urgently reviewing the compensation system and cutting Insurance Premium Tax.

Glasgow Times:

He said: "The pledge to wage war on dubious whiplash claims hasn’t simply not cut premiums at all and IPT is a tax on the responsible majority trying to do the right thing.

"In the meantime savings can be made by shopping around, fitting a black box, checking that the excess you pay still fits your budget and above all not having a crash!"

The ABI statistics are published on the day Parliament is set to censure the Government for its handling of its decision to cut the personal injury discount rate. Lord Hodgson of Astley Abbots, a member of the House of Lords secondary legislation committee, has tabled a Motion of Regret for debate following the committee’s dismay at a lack of an impact assessment accompanying the change to the discount rate.

Huw Evans, director general of the ABI said: “This dramatic increase drives home how important it is the government press ahead with a new framework for the discount rate and call a stop to further hikes in insurance premium tax.

"The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels.

Glasgow Times:

"Most younger and older drivers are likely to face increases even higher than this, hurting people who can least afford it. Worryingly these increases are unlikely to be the end of the road if reinsurance premiums go up at the end of the year, adding further costs to insurers.”

The ABI said that given the size of the discount rate cost impact, reinsurance premiums are likely to increase on renewal with most renewals taking place in January 2018.

"This will add to insurer costs which will inevitably feed through to the premiums insurers have to charge customers," the ABI said.

Until now it was thought victims of life-changing injuries receiving payouts would be able to invest the money and earn a rate of return, so a chunk could be cut from the total.

That discount rate was cut because the rate people are able to earn from low-risk investments has fallen sharply.

The compensation award using the rate is meant to put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs.

According to research carried out last year by insurance market experts Consumer Intelligence, drivers north of the border paid on average £562 to insure their vehicles.

This compares to compatriots in the north west of England and London who spent as much as 50 per cent more than the national average of £1,177.