Insurance How the Ogden rate change impacts the insurance industry

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It was announced on Monday 15 July that the Ogden discount rate will marginally increase from -0.75% to -0.25% with effect from 5 August 2019. This was a disappointing result for the insurance industry, which had anticipated a positive rate. The government had indicated to the industry and financial markets that the rate would be set between 0% and 1%. Consequently, insurers have based their claims costs on this which has helped to keep premiums down for customers.

The impact is not just directly to the insurance industry, with the biggest single financial impact being felt by the NHS, which therefore impacts UK PLC and tax-paying individuals in England and Wales. 

What is Ogden Rate?

The Ogden Discount Rate is used by our courts when calculating compensation in personal injury cases. Compensation awards are designed to put the claimant in the same financial position had they not been injured.

Impact of the change for the insurance industry

As the new rate is lower than anticipated, it's likely 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 brokers. We have seen the rates increasing steadily over the last 12 months and will continue to see rate increases form this announcement.

Illustration of calculation

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%

0%

1%

+2.5%

 Pain, Suffering & Loss of Amenity

£200,000

£200,000

£200,000

£200,000

£200,000

 Loss of Earnings

£1,282,400

£1,180,000

£1,132,800

£969,600

£782,000

 Care Package

£12,050,000

£10,468,000

£9,786,000

£7,614,000

£5,506,000

 Rehabilitation

£301,250

£261,700

£244,650

£190,350

£137,650

 Aids & Appliances

£903,750

£785,100

£733,950

£571,050

£412,950

 Legal Costs

£400,000

£400,000

£400,000

£400,000

£400,000

 Total compensation

£14,987,400

£13,144,800

£12,347,500

£9,795,000 

£7,288,600

During the past two year period when the rate was set at -0.75%, uncertainty regarding both the timing of a further discount rate change plus the rate to be determined, have created opportunities to negotiate claims at rates other than -0.75%. The new rate of -0.25% removes this uncertainty, meaning it will not be possible to negotiate claims at rates other than -0.25%.

Let us review your cover and assess if you're protected

Our confidential insurance review is designed to check that a business has the right policies in place. It can highlight any areas where your cover is leaving you exposed and identify if your premiums can be improved on.  

We use our considerable experience in a whole range of sectors to source the most appropriate commercial insurance products for you from across the whole market. This ‘silent’ review of your current policies will give you confidence that:  Your business is adequately protected should an incident occur.

 Any potential gaps in your current policies are identified. The premiums you are paying are the most competitive in the market. Excessive commissions are not being earned by your current provider.  

Speak to our team today.

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