Compulsory limit for motor insurance against property damage increased to £1.2m from 31/12/16

12 Dec 2016

On 9 December, The Department for Transport laid a Statutory Instrument before Parliament which will increase the minimum property damage cover required in UK motor polices from £1m to £1.2m (per accident) from 31 December.

As the Statutory Instrument (SI) is made by negative resolution, there will be no specific Parliamentary debate on its contents. The SI and supporting materials can be found here.

The increase is presented very much as an administrative issue, that being the five year review of the (Sixth) Motor Insurance Directive’s limit as required by its article 9(2).

The Explanatory Memorandum accompanying the SI is brief but does make it clear that the ABI, MIB and other stakeholders were consulted in October 2015 and again in the second half of 2016. There is not expected to be a significant impact (if any) on premiums due to the UK’s new statutory minimum level of £1.2 million for property damage: “…the consultations did not produce any opposition to the proposed increase, or indications that there would be any significant increase in insurance premiums. Those consulted represent small as well as larger businesses.” (at 11.3 of the memo).

The memo also notes the prospects of infraction proceedings against the UK by the European Commission if the limit in the RTA 1988 regime was not increased.

7.3 The new EU property damage minimum will be valid for the next 5 years so the equivalent sterling sum in domestic legislation needs to be able to withstand the expected the exchange rate fluctuations in that period. Any period of non-compliance with EU law, whether for a few days or longer periods of time represents an infraction risk which brings with it associated significant daily financial penalties for the UK Government.

 7.4 This minimum level [i.e. £1.2 million] was chosen as it will give us a very small amount of leeway within the Office of Budget Responsibility’s latest forecast exchange rates dated November 2016. The forecast covers the period up to Q1 2021, which has the lowest forecast exchange rate of €1.08 to the pound.

Standing back from the detail, what is interesting is that this is a very clear example of the UK continuing to adhere fully to EU requirements pending formally leaving the EU. In addition, the “very small amount of leeway” allowed by the new UK limit of £1.2m set against the OBR’s lowest forecast rate of €1.08 to the pound is a positive way of expressing what might otherwise have been taken as a straight transposition of the Commission’s new figure - €1.22m - at a rate of exchange very close to equivalence.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Alistair Kinley

Alistair Kinley

Director of Policy & Government Affairs,

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