The Government recently announced changes to the Ogden discount rate affecting the amount of compensation awarded in personal injury cases. These changes will affect the cost of all company insurance policies that cover personal injury claims such as Motor, Employers Liability, Public, Products and Property Owners Liability.
Ian McFadyen, Group Sales Manager for commercial insurance broker, Berns Brett Limited (BBi), summarises the reform and how likely it is to affect your premium.
The discount rate, explained
The Ogden rate is a framework for calculating compensation payments. It works under the theory that the party providing the personal injury award (i.e. your insurance company) can discount the sum provided to the claimant by a small amount because the recipient will be able to make up the difference between the actual award and the sum paid by investing the money.
As interest rates have dropped in recent years, there were some calls to review the rate and from 20th March 2017 it was reduced from 2.5% to minus 0.75%. Although this may seem like a modest percentage movement, it will have a significant impact on the amount of compensation awarded for the most serious claims.
For example, a 30 year-old employee falls from a ladder at work and suffers serious brain injury. He is unable to resume work and requires long-term care. On the basis of the previous discount rate of 2.5%, the loss of earnings and care claim would amount to £2.24m. The move to the new discount rate of minus 0.75% increases this settlement figure to £6.14m.
Who will be affected?
All policyholders are affected, whether low risk or high risk and whether claims free or not. Unfortunately accidents happen, often quite unpredictably, and your claims history is not always an indicator of your likelihood to incur a significant personal injury claim in the future.
The exact amount of increase to your insurance premiums depends on a range of factors such as your company’s trade activities and approach to risk management.
What should I do?
Now is the ideal time to review your existing insurance policies and the level of cover they provide. You should pay particular attention to your limits of indemnity, as these may no longer be adequate in the event of a serious injury.
These changes also serve as a timely reminder of the importance of reducing risks in the workplace and maximising efforts to avoid injuries and accidents occurring in the first place.
We can provide a comprehensive risk management service through our sister company, BBi Risk Solutions. We can help you review your whole organisation and advise on specific procedures, practice and control measures. As well as helping us to identify the level of insurance you require, this process will help you to reduce personal injury claims – and the cost of your insurance – as a result.