The Director General of the Association of British Insurers (ABI), Huw Evans, is surprised that Lord Chancellor David Gauke signed the “flawed” and “misleading” Impact Assessment document relating to the government’s plans to change the Ogden rate to -0.25%.
Echoing the disappointment expressed by much of the insurance and reinsurance industry, ABI Director General, Evans has written a letter to the Lord Chancellor to object to the misleading nature of the government’s Impact Assessment, which was released in Parliament to explain why the rate would be set at -0.25%.
There was industry-wide outcry when the rate was first cut to -0.75% from 2.5% by then Lord Chancellor Liz Truss in 2017, which ultimately led to a government consultation on how the rate was set and subsequently, a broad expectation that the rate would be adjusted to between 0% and 1%.
However, the UK’s Ministry of Justice announced on July 15th that the Personal Injury Discount (Ogden) Rate will be set at -0.25%, which came as a disappointing surprise to many given the fact insurers moved their reserving assumption to a 0% rate at FY18 results.
In his letter, Evans describes the Impact Assessment as “misleading and wholly disingenuous”, adding that it “misrepresents insurance market pricing and reserving in response to the setting of the previous minus 0.75% rate and omits to mention Ministerial decisions since 2017 designed to ensure the minus 0.75% rate was not widely adopted.”
Evans says that he is “very surprised indeed” that the Lord Chancellor decided to sign “such a flawed document.”
In particular, Evans highlights measures taken by the government to guide insurers and lawyers to assume a rate of between 0% and 1% and to actually start to use this in practice.
In respect to the efforts taken by the government, Evans concludes: “It is therefore wholly inappropriate that the IA issued to Parliament repeatedly compares the new [Discount Rate] of minus 0.25% to the previous rate of minus 0.75% and estimates a ‘saving’ to insurers of £230 to £320 million. Your department can be in no doubt this is not an accurate reflection of the current market situation because it has worked so hard with HM Treasury over the last 2.5 years to ensure it never became so.
“No such saving exists to be passed onto customers. I would urge you to submit an accurate and more balanced IA to Parliament before the new Statutory Instrument comes into force on August 5th.”
