Kerry London News

Ogden Discount Rate – What has changed?

Thursday 13th April
Ogden Discount Rate – What has changed?

The Lord Chancellor recently announced that the Ogden Discount Rate will reduce from 2.5% to minus 0.75% with effect from 20th March 2017.

The discount rate is a key component in the calculation of serious personal injury claim awards and this substantial change takes account of the reduced investment returns now available compared to when the rate was last set in 2001.

The reduced rate will apply to all current and future personal injury claims and will result in those suffering from serious injuries receiving substantially higher compensation payments than previously.

This Ogden discount rate change will have a significant impact on the insurance industry and will affect all classes of insurance which involve claims for personal injury particularly Commercial Motor, Employers Liability and Public/Products Liability.

Whilst the Association of British Insurers are engaging in consultation with the government on the framework for setting future rates, implementation of the current reduction will result in:-

  • Increased reserves for current injury claims
  • Increased reserves for future care and future loss of earnings
  • An estimated potential additional cost on current claims of £7 billion
  • An estimated additional cost thereafter of £1.2 billion per annum

Given the scale of the impact of this change it will likely lead to increased premiums for affected classes of insurance with precise increases varying from client to client depending on a range of factors including claims record, trade and future exposures.

Categories: Litigation,

Ogden Discount Rate