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The Ogden discount rate - how will the changes affect you?

With effect from 5th August 2019, the Ogden discount rate will marginally increase from -0.75% to -0.25% for personal injury awards. The government made the decision to increase the Ogden Rate after the current rate led to concerns that victims of life-changing injuries (claimants) were being significantly overcompensated. Here are the key points to note about the changes and how they will affect you:

What is the discount rate?

In personal injury cases, the courts and insurance providers use a discount rate to determine the present value of the compensation that needs to be paid to an injured individual (claimant). The objective of the discount rate is to make sure a severely injured person has the necessary financial security to provide for their care and loss of earnings. The discount rate is used to calculate the amount of compensation they receive to reflect the return they will earn when that money is invested.

The rate was previously set in 2017 when it was lowered from 2.5 per cent to -0.75 per cent.

This announcement led to significant criticism from insurers and customers alike, as many people argued the change would offer too much compensation for claimants and generate costly consequences for tax payers.

Impact of the change

The new Ogden Rate will increase the current rate by 0.5 per cent to -0.25 per cent.

There was general expectation in the market that the new rate would be between zero and 1 per cent. As a result, many insurers believe that claimants will remain overcompensated with the new rate.

As the new rate is lower than anticipated, it’s likely that insurers will have to increase the money they set aside to pay future claims which in turn increases the pressure on premiums. This is an unwelcome outcome for customers as well as insurers and brokers.

The substantial increase affects claims costs for all lines of business which see claims for bodily injury including; Private and Commercial Motor, Motor Trade, Casualty (Employers Liability, Other Liability and Contractors Liability) and SME.

As such, drivers and businesses may see an increase in their motor and liability insurance premiums.

By way of example

Using Allianz’s example; The table below illustrates how compensation payments would be calculated at the current rate of -0.25% and also at lower and higher rates for a 36 male paraplegic unable to return to work:

 

-0.75%

-0.25% 

+2.5% 

Total compensation

 

 £14,987,400

 £13,144,800

 £7,288,600

So what do I need to do?

It is important that you continually review your insurance limits to make sure you have adequate levels of cover in the event of a claim occurring.

How can CLEAR help?

Your usual CLEAR contacts are on hand to advise and support you in adapting to these changes and to help with any other questions you may have. If you need to make a claim, our dedicated claims team are committed to securing the best settlement we can for you.

In addition, our broking teams will continue to work hard to source reasonable premiums for you from our range of trusted insurers.

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