Zurich’s Chief Claims Officer, David Nichols, has expressed “great disappointment” following the Ministry of Justice’s lower-than-anticipated -0.25% Ogden rate change.
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 a cut by then-Lord Chancellor Liz Truss in 2017 to -0.75%, motor insurers in the UK expressed their concern, leading to a government consultation on how the rate is calculated.
“It’s essential that claimants get the compensation they are entitled to following an injury. However, the Government’s failure to change the discount rate to a balanced level will only serve to increase the cost and, therefore, affordability of certain types of insurance,” explained Nichols.
“This rate is likely to reduce both market coverage and affordability for higher risk customers such as road hauliers, commercial fleets, young drivers and older drivers. It will also have a financial impact on public liability cover for the public sector and businesses.”
Meanwhile, Fitch Ratings believes the lower-than-expected Ogden discount rate is a “small one-off negative” for the UK’s motor insurers.
The ratings agency says this decision will mean slightly higher payouts on bodily injury claims, forcing many insurers to increase their reserves for settling claims.
Fitch says this will cause a small hit to earnings, which it expects insurers to quantify when 1H19 results are announced in August.
“The earnings impact should be one-off, relating only to insurance contracts already issued,” Fitch explained in a statement.
“For contracts issued or renewed after today’s announcement, insurers should quickly be able to update their pricing to reflect the new Ogden rate.
