Reinsurance News

Ogden rate change to be confirmed on or before August 5th

19th March 2019 - Author: Luke Gallin

The first review of the personal injury discount rate is set to be announced today by the Lord Chancellor, David Gauke, following outcry from auto insurers after the rate was cut from 2.5% to -0.75% in 2017.

Car lot imageThe UK’ Ministry of Justice said today that the first review of the Ogden rate, under the Damages Act 1996 as amended by the Civil Liability Act 2018, is to start on March 19th, 2019.

Under the Act, the Lord Chancellor must conduct the review and determine if the rate should be altered or not within 140 days of and including the review start date, being on or before August 5th, 2019.

A steep cut to the so-called Ogden rate in 2017 dented the profits of numerous auto insurers in the UK.

The rate is used to determine how much money insurers should pay as compensation to people who have suffered life-changing injuries. The lower the rate, the larger the sum insurers have to pay on personal injury claims, as it assumes lower annual investment returns for that amount.

Following the cut to -0.75% by the then Lord Chancellor, Liz Truss, motor insurers in the UK expressed their concern, leading to a government consultation on how the rate is calculated.

Reforms to the Ogden rate were supported widely across the UK insurance and reinsurance sector, and in early 2018, the UK government’s Ministry of Justice announced intentions to introduce the Civil Liability Bill into the House of Lords, designed to address needed reforms to both the Ogden discount rate and whiplash claims.

Commenting on today’s announcement, James Dalton, Director, General Insurance Policy, Association of British Insurers (ABI), said: “We welcome today’s announcement. Insurers remain committed to paying 100% compensation and want to see a process for setting the Discount Rate that delivers a fair outcome for claimants, motorists and taxpayers. The outcome of the review must deliver this, and we will continue to play our part to ensure that it does.”

Alistair Kinley, Director of Policy & Government Affairs at law firm BLM, also commented: “What this means is that the legal basis for calculating lump sum damages will change in less than five months – so it’s among the few things not being side-tracked by Brexit. The way it’s done at the moment is based on an obviously-flawed assumption that people invest compensation in a way that loses money year-on-year.

“The review that starts today will take a more realistic approach to investment and should deliver a more realistic discount rate. People dealing with claims between now and August need to bear this in mind. It’s also worth remembering that the law requires insurers to report to the FCA on savings from the new approach.”

It’s unlikely that a change to the rate will be as dramatic as the cut in 2017, but UK motor insurers and reinsurers will be hopeful that needed reforms will lower their costs, while at the same time resulting in lower premiums for drivers.

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