Industry News

The Ogden Rate – What Is It And How Does/Will It Affect My Insurance?

The Ogden Rate

April 2017

It's been in the news in recent weeks but few of us will realise the possible implications the change on the Ogden Rate will have on our insurance covers/premiums. Hopefully the following information will assist.

So what is it all about?
When insurers calculate claims settlements on injury claims, they take into account various factors when coming up with a final quantum amount such as loss of future earnings and cost of future care, if needed.

If a large lump sum is awarded, then the likelihood is that the recipient will invest/save some of that amount and therefore reap returns on that investment. That assumption has previously resulted in the Ogden Rate (set by the Chancellor) being set as a discount of -2.5% and has been since 2001. This rate is applied within the calculation as a discount on the damages awarded to recipient as they would likely gain this back through investments or savings. The discount rate has now been changed to +0.75% so no discount will be allowed and an extra amount charged instead.

As an example, if a 30 year old had a serious brain injury (and so would lose out on future earnings along with high costs of care amongst other amounts) then if insurers had previously calculated the final settlement at circa £2.25m, applying the new Ogden Rate it would be more like £6m plus*.

What does this mean in terms of insurance premiums?
The Ogden rate change came into effect on 20th March 2017 and we are already seeing insurers react to it but as yet there is no clear pattern. Insurers have not as one definitively said what they will be strategically doing, although many have suggested that premium increases are inevitable and we are starting to see examples of this coming through. It seems they were not expecting this rate to be changed quite so dramatically and have therefore had to quickly adjust their reserves to ensure they have enough for claims payments on any injury claims they have outstanding and future injury claims.

What classes of insurance will it affect?
Any type of insurance with a liability aspect so Motor Including Fleet, Employers, Public and Products Liability.

What do you need to do now?
First, be prepared for possible premium increases across the above lines of business. We will work with you to minimise these.

Second, moving away from premium consider your cover with our help. Are your liability limits high enough to account for these higher claims payments? Now is definitely the time to review your current limit/purchase more cover.

Any good news?
Insurers are lobbying the government for this rate to be reverted back to its original amount and it has been agreed there will be consultation. There is no guarantee this will produce changes that insurers desire, in which case naturally they will have to look to recoup their losses/future losses by increasing insurance premiums over time.