2017
The Ogden Discount Rate – Premium & Risk Increases It was announced recently that the Ogden discount rate has been reduced from 2.5% to minus 0.75%, and the change will take effect from 20 March 2017. This is one of the most significant changes facing our industry in some time. It will undoubtedly have a substantial impact to you.
What is the discount rate? The objective 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.
Impact of the change The reduction means that those suffering from serious injuries will receive significantly higher compensation payments than before.
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. We have already seen insurers increasing their claims reserves on motor and liability claims with significant impact. The announcement caused shares across the sector to plummet by as much as 7pc [SOURCE: TELEGRAPH] and as such, many will have no choice but to immediately consider their pricing requirements in this new environment. This will be an unwelcome change for insurers, brokers and customers alike but one that cannot be ignored.
Your Indemnity Limits – Are you Exposed? In addition to premium levels, the impact of the changes could also have serious consequences for businesses who could be left inadequately insured. Figures calculated for the Guardian by insurer LV= underscore the dramatic impact of how the rate change feeds through to huge increases in payouts. It said that if a 25-year-old sustained a moderate brain injury and was awarded £100,000 a year for life, under
the old system the total payout would be calculated as £3.1m. But under the new discount rate, the same person would be awarded £8m. If this injury was caused by a business to a member of the public, a company purchasing £5,000,000 Public Liability cover would have been sufficiently insured under the old system. Under the new system, they would be significantly underinsured and left with a sizeable exposure that could force them out of business. It is vital for businesses to consider their Employers & Public Liability limits now.
Find out more If you’ve got any questions about the discount rate change please contact your Account Executive or info@thomas-carroll.co.uk
Contact E: info@thomas-carroll.co.uk T: 029 2088 7733