On Monday 15th July the Ogden discount rate was set at -0.25% – up from -0.75% – to come into force on August 5, 2019.
This change will have an impact on policies where personal injury claims can occur so we have provided some helpful key points below to help you to understand the change and the reasons for it.
What is the Ogden Discount Ruling?
The Ogden Rate is used to assess lump sum awards for personal injury claimants. The courts take into account the net rate of return (discount rate) the claimant might expect to receive from a reasonably prudent investment of lump sum compensation. This is to ensure that a severely injured person has the necessary financial security to provide for their care and loss of earnings. The higher the Ogden rate – in relation to a higher predicted investment return – the less insurers have to pay out.
Why has the rate been changed?
This is the first discount rate review under new methodology provided for in the Civil Liability Act 2018 and the new rate from the Lord Chancellor will save insurers money as it had previously been set at -0.75% percent in December 2017. However, the insurers had hoped the Lord Chancellor would set a larger discount of around 0% and 1%.
What impact will this have?
Insurers that have been working to expectations of the new discount rate being between 0% and 1% may take a ‘one off hit’ to earnings.
However in the longer term the change will reflect as a cost to the expense of insurance-buying motorists and businesses, who will find their motor insurance premiums are likely to increase.
If you would like further information or advice on this matter please contact your usual Reason Global account manager on 01273 739961.
This article was updated on 17 July 2019