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Ogden Discount Rate and Effect on the Insurance Market

You will now be aware that the Government has taken the decision to change the way in which the cost of serious injury claims is calculated.

On 27 February, the Lord Chancellor confirmed that the Discount Rate, a key component of this calculation concerning future costs, is to be reduced from the current level of 2.5% to -0.75%. The change takes effect from 20 March 2017 and will have a significant impact on the cost of the most serious injury claims. A leading Insurance Company has predicted the overall cost to the industry on all impacted claims outstanding at 20 March is to be £7bn, with a further additional annual cost of around £1.2bn thereafter.

What does the reform mean?

The change will impact the cost of insurance for products which cover injury claims, mainly Commercial Motor, Employers’, Public and Products Liability insurance. The precise impact will vary depending on a range of factors. But we expect most insurers and particularly those with a large motor based book to increase prices to help cover the cost of these changes. As yet we are uncertain by how much, but increases are expected.

What happens next?

Insurers are engaging with Government to make sure they understand the effect this decision will have on millions of people. Following a meeting between the Chancellor and industry leaders, we welcome their commitment to review the process.

Insurers will continue to make their voice heard to ensure that in the future, personal injury discount rates are set at a level that is fair to both the injured and businesses.

What will we be doing

Rest assured we will be ensuring any effect of this proposed change will be minimised as much as possible and we will strive to ensure that clients premiums remain competitive. We will discuss these changes when we see you next, but if you wanted to get clarification now please contact your Account Executive.

Published 17th March 2017

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