What does the Ogden Discount Rate Change mean for you?
On Monday 20th March the Ogden Discount Rate was reduced from +2.5% to -0.75%. This statutory rate is set by the Lord Chancellor and forms part of the Criminal Damages Act 1996. The rate was last changed in 2001.
The change in rate appears on the surface to be relatively small, however it has significant implications for insurers. When settling a personal injury claim, insurers are required to take in to account an individual’s future care costs and the potential loss of earnings. Rather than these payments being made over a period of time, the civil court arrives at a figure and then applies the Ogden rate to establish the final settlement which takes in to account the future investment income generated by the sum.
Initial examples are dictating significant increases in the awards made by insurers and in some cases the amounts are more than double the original estimate.
There are two elements organisations need to be mindful of: –
- The premium levels for those policies that incorporate an element of liability insurance for personal injury (motor, public liability and employers liability) are likely to come under upward pressure. As you might expect, at this early stage, insurers have audited in terms of the negative impact on their results however there is not yet any common ground in what remains a competitive market.
- Those limits of indemnity that were adequate 2-3 weeks ago will need to be revisited and reconsidered.