UK’s Lord Chancellor unveils personal injury Ogden rate change proposal
The UK’s Lord Chancellor David Lidington has proposed to change the setting of the personal injury Ogden discount rate to set by reference to “low risk” rather than “very low risk” investments as at present, better reflecting evidence of the actual investment habits of claimants.
In February this year the discount rate was reduced from 2.5 percent to minus 0.75 percent, in a move that shocked the industry as it impacted profits of re/insurers.
The overall cost to insurers and reinsurers of the UK’s change in the personal injury Ogden discount rate was estimated at £3.5 billion across all lines of business, by advisory firm EY.
The complaints from the industry made the UK government launch a consultation on potential changes to the rate.
The proposals following the consultation will ensure the rate is reviewed more regularly in future – at least every three years – and extend the expertise available to the Lord Chancellor in carrying out the reviews by creating a role for an independent expert panel in the process, according to the press release.
Lidington said: “We want to introduce a new framework based on how claimants actually invest, as well as making sure the rate is reviewed fairly and regularly.
“In developing our proposals, we have listened carefully to the views of others, and we will continue to engage as we move forward.”
While it is difficult to provide an estimate, based on currently available information if the new system were to be applied today the rate might be in the region of 0 percent to 1 percent.
The move will help ensure that claimants continue to receive full compensation, but will significantly reduce overpayment by more reliably reflecting how the money is actually invested.
Mohammad Khan, UK general insurance leader at PwC, commented: "This morning's announcement by the Ministry of Justice should bring some relief to motorists. Premiums had already risen by about £75 on average and about £250 for young drivers following the original discount rate announcement earlier in the year as insurers passed on roughly half of the expected costs caused by the original rate move.
"If this morning's announcement had not been made, insurers would have been forced to pass on the remaining costs and annual motor insurance premiums would have risen again in November and December by an average of £100 for UK motorists and by between £300 and £500 for young drivers.
"As a result, today's announcement, if passed through Parliament, should mean that motor insurance rates remain stable for the next six months. However, if the legislation is not passed, it could mean motorists facing steep premium rate rises early next year."
"The announcement will also be welcomed by motor insurers, some of who's results at the half year were adversely affected by Ogden. If passed before the year end, it should bring some relief to motor insurers."
Get the latest re/insurance news sent to your inbox every day - Sign up to our free email newsletters
Today’s stories
Barbican CEO explains why he supports Brexit
Hurricane Irma could cause industry loss above $100bn
Marsh restructures global management with new roles and business units
Premia poaches DARAG Germany CEO to lead European operations
Markel to buy UK specialist insurer ECIC
DARAG fills senior positions in core operations
Harvey flooding total property damage at up to $75bn
Endeavour partners with Advent Claims to support Lloyd’s coverholders in Canada
Diversified reinsurance panel most relevant for insurers: survey
