The Ogden discount rate has been reduced
18th February 2020
Until recently hardly anyone knew of the Ogden discount rate but with effect from 20th March 2017, the Ogden discount rate was reduced from 2.5% to -0.75%
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.
In practice, discount rates are set to reflect small and conservative investment gains that accrue over long and low-risk investments.
**Impact of the change.**
The significance of the change is striking because it effectively requires any party paying a claim to increase-rather than discount-the sum that is provided to the claimant.
This 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.
As such, drivers and businesses may see an increase in their motor and liability insurance premiums.
**By way of example**
Using Zurich’s example; For a customer with a £4m open motor injury claim (of which £2.5m is Ogden-related), with a male claimant aged 30, the change in the Ogden rate could more than double the size of the Ogden-related portion of the claim and increase the claim by approximately £2.65m. In another motor case we have seen a reserve on a motor claim increase from £5.5m to £11m!
**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.
The changes to the Ogden discount make this all the more relevant because claims settlements will be higher. Many policies have limits of £5m or £10m and with the new discount rate these may need to be increased.
**How can MPW help?**
Your usual MPW 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 large panel of trusted insurers.