The Secretary of State for Justice, Liz Truss, has announced that the Ogden discount rate has been reduced from 2.5% to minus 0.75%. The change will take effect from 20 March 2017.
This is one of the most significant changes facing the insurance profession in some time. The objective of the discount rate 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, by reflecting the return they will earn when that money is invested, typically in lowest risk investments such as Index Linked Gilts. The reduction means that those suffering from serious injuries will receive significantly higher compensation payments than before.
The increase affects costs for all lines of business which see claims for bodily injury, including Private and Commercial Motor, Motor Trade, Employers Liability and Public Liability. The reduced discount rate will hit the motor insurance industry, in particular, with very large one-off reserve charges and hence premiums, particularly for young drivers, are expected to increase significantly as a result.
February 28, 2017
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