Ogden Rate Change – The Implications

It was announced earlier this year that the Ogden discount rate has been reduced from 2.5% to -0.75%, and the change is now in full effect but just what does this mean for you and your insurance premium.

This is one of the most significant changes facing the insurance industry in some time and will undoubtedly have a substantial impact.

What is the discount rate?

The objective is to make sure a severely injured person has the necessary financial security to provide for their care and loss of earnings. The discount rate is used to calculate the amount of compensation they receive to reflect the return they will earn when that money is invested.
Please see this illustration provided by Allianz for an example of how the discount rate is used to calculate compensation payments and the way in which this change will impact certain types of insurance premium.

Impact of the change

The reduction means that those suffering from serious injuries will receive significantly higher compensation payments than before.
The substantial increase affects claims costs for all lines of business which see claims for bodily injury – including Private and Commercial Motor, Motor Trade, Casualty (Employers Liability, Other Liability and Contractors Liability) and SME. As such, many insurers have been obliged to immediately consider their pricing requirements in this new environment.
With such premiums likely to be on the rise, this change will be unwelcome for many customers and serves to re-emphasise the importance of choosing the right broker to arrange your personal and commercial insurance.