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New Ogden rate will disappoint insurers and policyholders

The government has surprised many in the insurance market by setting the revised Ogden discount rate at -0.25%.

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.

The new rate was widely expected to be set between 0% and 1%, and many insurers have voiced discontent at the decision. Airmic was supportive of the new methodology for calculating the rate, but said this decision will disappoint members.

"The change will disappoint insurers who will need to bolster their accounts, and larger commercial insurance buyers who may find cost increasing and existing cases going back to court - and all that entails for all parties," said Julia Graham, Airmic's deputy CEO and technical director.

"Nobody wants to see those entitled to compensation receive less than is fair - this is a fundamental principle of insurance. However, the apparent degree of uncertainty of the last two years has been replaced by a rate which will undoubtedly disappoint most, other than claimants."

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. The rate will be reviewed again within 5 years.