Ogden discount rate

It was announced on Monday that the Ogden discount rate (the rate used by Insurers to calculate lump sum payments) has been reduced from +2.5% to -0.75%, and the change will take effect from 20 March 2017. 

This is one of the most significant changes facing our industry in some time.

Previously Insurers could adjust their claims payments to account for the fact that any lump sum could be invested by the claimant who would in turn receive interest on that amount.

Due to the low interest rates, Insurers have been told they cannot use this previous calculation which means that the lump sums they will be paying out will be considerably higher.

An example which shows a typical scenario : -

A 30 year old is injured by another driver in motor accident which leaves him unable to work.

His current net salary was ￡25,000 per annum.

He needs full time care estimated at ￡75,000 per annum.

Under the existing guidelines : the lump sum the negligent Insurers would be paying is ￡2,791,000

The new calculation basis would see the lump sum being : ￡6,325,000 (a ￡127% increase)

It should be noted that all Insurers now face the prospect of much higher claims in the event of an injury and as a direct result will be looking to amend the premiums they charge.

Insurers have warned that private car insurance is expected to rise dramatically, with some estimates of an average up to ￡75 a year jump. This will be added to the 12% rise in premiums witnessed last year in 2016.