The Rt Hon Shabana Mahmood MP, Lord Chancellor, has announced today that the Personal Injury Discount (Ogden) Rate will increase to 0.5%, effective from 11 January 2025.
For those unaware, the Ogden rate is a figure which courts must consider when awarding compensation for financial losses in the form of a lump sum in personal injury cases in England and Wales. The lower the rate, the larger the sum insurers have to pay on personal injury claims.
The decision to increase the rate follows a review that began on July 15, 2024, and considered evidence from two Calls for Evidence, consultations with statutory consultees, input from HM Treasury, an independent expert panel, and advice from officials.
Such reviews are reportedly mandated at least once every five years, with the last occurring in July of 2019, when the UK’s Ministry of Justice shifted the Ogden Rate to -0.25%.
At the time, this was considered a blow to motor insurers, who had banked on a rate change to between 0% and 1%, after the Lord Chancellor reduced the rate from 2.5%, where it had been consistently since 2001, to -0.75% in March 2017.
With the new changes however, opinions have brightened, as Jon Dye, Director of Underwriting, Motor, at QBE Insurance, stated, “We welcome the Personal Injury Discount Rate review and today’s announcement to align the rate with more recent economic conditions and the rates recently introduced in Scotland and Northern Ireland.”
Dye continued, “Whilst this rate is still likely to result in some claimants being over-compensated, this movement is positive news for consumers and business and will help negate the continued upward pressure on the cost of serious bodily injury claims, including increasing care cost at c+9-12%.”
Jonathan Edwards, partner and head of Insurance & Risk at HCR Law, said, “The new PIDR is very good news for insurers, as it will hopefully begin to mitigate significant claims inflation over recent years, fuelled by the ever-increasing cost of living, potentially freeing up funds for insurers to utilise elsewhere.
“This puts England and Wales on par with Scotland and Ireland, having revised their rates earlier this year. Insurers will be reviewing outstanding settlement offers and reserves in advance of the new rate coming into force on 11 January 2025.”
Meanwhile, Alistair Kinley Director of Policy & Government Affairs at Clyde & Co, observed, “Following the announcement of a new Personal Injury Discount Rate (PIDR) of +0.5% in Scotland and Northern Ireland back in September, the Lord Chancellor today announced her decision on the new PIDR for England & Wales, which has also been set at +0.5% and will apply from 11 January 2025.
“The much-awaited new PIDR is a key component in calculating the lump sum compensation for personal injury claims involving future losses – such as the cost of care and loss of earnings – that claimants who have sustained life-changing injuries as a result of someone else’s negligence – are legally entitled to recover.
“In contrast to Scotland and Northern Ireland, where the applicable laws set out a detailed statutory formula for the PIDR, the legislation in England & Wales gives the Lord Chancellor discretion to set the PIDR, after having taken detailed advice from the Treasury and from an Expert Panel. Having considered that advice, the Lord Chancellor has selected a new single PIDR of +0.5%.
“Although the government had consulted in 2023 about possible options for dual or multiple rates, we expect its reasons for not pursuing that option and retaining a single rate will be to avoid increased complexity, delay and cost that would be associated with dual rates.”
Kinley went on, “The PIDR of +0.5% is designed to ensure that claimants will continue to have sufficient funds to meet their future needs. We anticipate that the new rate reflects enhanced long-term investment returns when compared to those in 2019. The Lord Chancellor will publish the reasons for her decision shortly and those we expect will touch on the improved investment conditions as well as explaining why the option of dual rates was not taken forward.
“Although the new +0.5% PIDR will mean that lump sum awards, at the outset, are lower than those using the previous PIDR of -0.25%, the greater investment performance over time should mean claimants realise higher investment gains from which they can draw on over time to meet their ongoing needs. The new, higher PIDR means that a greater proportion of needs in future years should be met by this investment return.
“It is important to note that an intrinsic part of the calculation of the 2024 PIDR is a higher allowance for annual investment advice than in 2019, meaning that claimants should now be better able to meet the cost of professional advice on how to invest and protect their awards. In our view, therefore, the critical 100% compensation principle, on which all stakeholders agree, still very much underpins the new PIDR.”
