Revised Ogden proposals could save re/insurers up to £2.5bn
The UK government’s new proposal for the personal injury Ogden discount rate could mean reserve releases for re/insurers of up to £2.5 billion, according to consultancy firm EY.
The government has revealed a proposal for the Ogden discount rate which will imply a real rate of 0 percent to 1 percent.
In February, the UK government reduced the Ogden discount rate to -0.75 percent from 2.5 percent, which hit both insurers’ and reinsurers’ profits.
The overall cost to insurers and reinsurers of this change in the Ogden discount rate was estimated at £3.5 billion across all lines of business and would add 6.5 percent to customer premiums, according to advisory firm EY.
Dave Matcham, chief executive of the International Underwriting Association, welcomed the reform proposal.
“The plans promise to establish a much fairer and more realistic assessment of investment strategies,” Matcham said.
Tony Sault, UK General Insurance Leader for EY, noted that motor and liability insurers will welcome the revised proposals – not only because of the cost impact, but also because of the promise to build in a three-year review process which is set to avoid the impact of large rises going forward.
A revision to 0 percent could reduce the estimated Ogden change costs from the February move by one-third meaning reserve releases of £1.2 billion, according to EY. A change to 1 percent is likely to reduce the cost by two thirds, meaning up to £2.5 billion could be saved by insurers and reinsurers compared to their current booked position.
Sault said: “We would also expect the recent rise in premiums to level off in anticipation of the new legislation, and ultimately premiums could fall between 2 percent and 4 percent, saving up to £21 on the average premium to the consumer.”
While welcoming the planned Ogden changes, the Chartered Insurance Institute (CII) also suggested a further review.
“In the longer term, we should look at a more radical reform of the personal injury system,” said Matthew Connell, director of policy and public relations at the CII. “The current, highly adversarial system creates unnecessary legal costs, increases distress for claimants and pushes up insurance premiums for consumers. A system that prioritises the immediate needs of people with personal injuries above the apportionment of blame would be less stressful for claimants, and could avoid many of the unnecessary costs that ultimately fall on consumers,” Connell said.
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