Originally posted on CMJ Insurance brokers.
Is your liability insurance providing enough cover? The impact of the Ogden Discount Rate Change
In the most recent budget the Lord Chancellor took the decision to amend the Ogden Discount Rate for the first time since 2017. This rate is used to adjust claims settlement figures for claimants suffering life changing injuries, and is intended to allow for the investment opportunity that a lump sum settlement will provide the individual with. For example, if a claim for 20 years loss of earnings were to be settled for £1,000,000 the Ogden rate would be applied to the calculation to account for the money that could be made over that period by investing it.
The Ogden rate has been 2.5% since 2001 – for claims being settled on or after 20th March 2017 the rate will be -0.75%, to reflect the significant changes in interest rates and investment returns in the current economic climate. The result – claims settlements are going to be significantly higher.
The impact on insurance is two-fold:
- Insurers will be paying out higher claims settlements, meaning they will in all likelihood be looking to increase premiums
- Policyholders need to consider their liability limits of indemnity, specifically Employers, Public and Products Liability
The first point is something that policyholders and their brokers should be managing in advance of renewal, ensuring that their risk management, health and safety, and quality controls are in good order, and that this has been evidenced to insurers.
The issue of indemnity limits is less obvious, but if we consider that one insurer has suggested that certain claims could see Ogden related figures increased by 106%, the potential for exceeding limits of indemnity becomes clearer.
Our recommendation to all commercial policyholders, but especially those with higher workforce exposures (whether through staff numbers or activities), significant public footfall at their premises, or more complex and higher risk products liability exposures, give serious consideration to increased limits.
Potential claim examples*:
1. Construction Worker, Serious Head Injury
29 year old needing lifetime care. Potential payment increases from £7,500,000 to £14,500,000.
2. Fall from Height, Serious Head Injury
Claimant still hospitalised unable to speak 12 months on. Potential payment increases from £5,300,000 to £10,600,000.
3. Cyclist hit hole in road causing fall
Traumatic brain injury. Potential payment increases from £3,800,000 to £6,800,000.