News Article

Insurance Implications Following Ogden Rate Change

As has been widely reported in the national media, The Lord Chancellor recently announced that, from 20 March 2017, the Odgen rate of discount will be reduced from 2.5% to -0.75%. But what does this actually mean?

The discount rate affects the amount of compensation a person actually receives in the event of a personal injury claim. It works on the basis that a payment will gain interest over time, especially with larger awards for people who are most seriously injured, but as interest rates have reduced in recent years the rate has been reviewed.

Changing the discount rate from a positive to a negative figure will have a significant effect on both claimants and insurers, resulting in huge increases in compensation payments.

For example, the insurer Allianz has indicated that if a 30 year old man earning £25,000 a year was seriously injured and required nursing care for the rest of his life, the current calculation would award him compensation of £2,791,000. Following the reduction in the Ogden rate this would now be calculated as £6,325,000.

As a direct result of the change in the discount rate, we are expecting insurance premiums to increase to help cover the costs, particularly in the areas most affected by personal injury claims. We can, therefore, expect to see increases for motor insurance, public and employers' liability, professional indemnity – and any other policy providing cover for injuries, such as shops and offices.

Whilst the likely increase in premiums will be of concern to individuals and businesses alike, the other issue to consider is "Do I have sufficient insurance to cover a claim?" With most, if not all, sole traders and businesses having liability cover, how much cover is enough?

At Rees Astley, wherever possible, we will be recommending a minimum level of liability cover of £5,000,000 and providing quotations for £10,000,000 (some higher-risk industries may require higher indemnity limits and will be quoted accordingly) as we feel that lower limits will not cover large losses – and having insufficient cover could result in bankruptcy or business closures.

No matter what industry you are in, it is important to ensure you are properly protected, so please contact us if you would like to discuss these issues further.