Government starts review of Ogden Rate
New rate likely to be between 0-1%
The UK government has started its review of the Ogden discount rate and will make a decision by 5 August on whether the rate should be changed.
The Ogden rate, which refers to a discount rate used to determine lump sum compensation to claimants who have suffered life-changing injuries, was unexpectedly cut from 2.5% to -0.75% in 2017, pushing up both compensation payments and insurance prices.
In response to strong pushback and lobbying from insurers, supported by Airmic, the government changed the law in December 2018 which determines how compensation payments to accident victims are calculated.
Alistair Kinley, director of policy and government affairs at law firm BLM, said the new law was based on “more realistic assumptions” about how claimants invest their money, and that government sources have indicated that the new rate is likely to be between 0% and 1%.
“When the rate was unexpectedly cut to -0.75%, claims estimates changed dramatically overnight. Businesses should keep a close eye on what happens now, and make sure they review their level of protection, including deductibles and levels of excess, in light of any changes.”
He added: “The process of setting a discount rate is not, in our view, susceptible to Brexit-related delay. If that is correct, then there will be a new rate in force in less than five months.”
The new rate will affect any cases resolved in England and Wales on or after 5 August 2019. This does not affect Scottish policyholders who are subject to different laws.