Insurers warn of premium increases following the changes to compensation awards
The chancellor recently announced a reduction in the personal injury discount rate (known as the Ogden Rate) which is effective from today, 20th March 2017.
Ogden Rate Changes – what is it all about?
The personal injury rate known as the ‘Ogden rate’ is a set of statistical tables used in the civil courts to calculate the extent of compensation awards involving personal injury and fatal accidents.
In calculating the amount of compensation, factors such as future medical care, loss of earnings, life expectancy, lifestyle changes and investment income are taken into account.
The changes to the Ogden discount rate has been considered necessary as we are living longer due to improved medical care, this comes at an increased cost, and that interest earned from investments has reduced significantly.
This means that compensation awarded to a claimant will now rise significantly and Insurers will therefore need to increase their premiums to meet these higher amounts.
What is the Ogden Discount Rate
- A calculation used by the courts to determine how much an Insurer must pay to a claimant with life changing and long term personal injuries.
- A lump sum compensation award takes into account what interest it can be expected to earn by investing it.
- Under the previous system, last revised in 2001, the award was normally reduced on the basis of an assumed interest rate which will no longer be applied and will result in courts awarding much higher compensation payments.
- A compensation award should put the injured person in the same financial position as before their injury and includes loss of future earnings and medical care costs.
- Claimants are treated as risk averse investors and are expected to receive safe long term low interest returns typically from index linked gilts/bonds on which they will be dependent for the remainder of their lives.
- Insurers will therefore need to increase their reserves which potentially will impact their future profits.
- Expect premiums to increase to enable insurers to meet regulatory financial requirements and safeguard investing shareholders.
- The insurances affected are considered to be all motor and various forms of liability policies.
Watkin Davies will work closely with our panel of insurers to contain the impact of premium increases and encourage our clients to regularly review their insurance requirements.
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