The Ogden Discount Rate & the impact on your insurance
July 10, 2018
The Ogden Discount Rate is used by the courts to calculate settlements for large personal injury claims.
Compensation awards are designed to put the claimant in the same financial position that they would be in had the accident not occurred. The Ogden Discount Rate is used when the claim includes an element of future losses, which are most likely to consist of loss of earnings and the cost of care/rehabilitation.
Some claimants will choose to receive their compensation as a series of payments over time, but most will choose to have a lump sum. To make sure that claimants are neither under nor over compensated, the courts apply a calculation called the Discount Rate. This adjusts the compensation award amount to take into account the return expected over time when a lump sum is invested. The rate is set at a level to reflect the return available, on the lowest risk investments, typically index-linked gilts (the value of which has been falling since the financial crash in 2008).
In February 2017, it was announced that this Discount Rate would be reduced from 2.5% to -0.75%, with effect from 20th March 2017.
These changes will increase the cost of some claims, with the likely result being an increase in insurance premiums.
But that’s not all.
If your business has the potential for a large personal injury claim, then you should consider the level of insurance you have in place.
Points to Consider:
- Your business locations and the number of employees that could be in one place at any given time – and therefore potentially at risk of injury.
- The potential impact on neighbouring properties and people if your business had a major fire which spread and you were found to be negligent.
- The number and type of your products and end users – the more users, the more potential injury claims arising from one event.
- The use of commercial vehicles. Typically, the standard motor third-party property damage is lower than for cars.
- Operating or exporting overseas. Damages claims in other countries, such as the USA, can be significantly higher than in the UK. As an example, in 2013, claims relating to a fire/explosion in a storage and distribution facility which resulted in multiple fatalities, injuries and damage to the surroundings settled at US$101 million.*
- Any potential for injury to children. Payments relating to serious injuries may be expected to continue for a considerable number of years.
*source ACE Group
To see some examples of claim payments, click here
How FOCUS can help
We can review your liability insurance policy cover and limits with you at your next renewal date and discuss the risk relating to your business.
If you would like to talk to us before renewal, please do not hesitate to get in touch.