On 15th July 2019, Lord Chancellor David Gauke announced a new Ogden Rate (also known as the Discount Rate) of -0.25 per cent for personal injury awards. This new rate, which represents a 0.5 per cent increase from the current rate of -0.75 per cent, will come into effect on 5th August 2019.

The government made the decision to increase the Ogden Rate after the current rate led to concerns that victims of life-changing injuries (claimants) were being significantly overcompensated, thus increasing financial pressure on public services that possess major personal injury liabilities, such as the NHS. However, a smaller than expected rise in the rate has resulted in widespread disappointment from insurers.

The Ogden Rate

In personal injury cases, the courts and insurance providers use the Ogden Rate to determine the present value of compensation that should be paid to a claimant for their future financial losses (eg loss of future earnings and medical care costs). Applying this rate to the compensation total is intended to ensure that claimants receive the full compensation they were awarded—no more or less—by considering what they are likely to earn on that money before they are expected to spend it.

The rate was previously set in 2017 when it was lowered from 2.5 per cent to -0.75 per cent. This announcement led to significant criticism from insurers and citizens alike, as many people argued the change would offer too much compensation for claimants and generate costly consequences for tax payers.

By implementing the Civil Liability Act 2018, the government introduced measures to reform the law on how the Ogden Rate is set. Before these reforms, there were no fixed intervals in place that established when the rate needed to be reviewed. For instance, prior to the rate revision in 2017, the previous rate was set in 2001. Going forwards, the rate will now be reviewed every five years.

The new Ogden Rate will increase the current rate by 0.5 per cent to -0.25 per cent. In practice, this rate can be represented as follows: A 30-year-old male possesses annual financial costs of £50,000. Under the existing -0.75 per cent rate, he would be awarded £2,935,500. Under the new rate of -0.25 per cent, he would be awarded £2,565,250—a difference of £370,250.

Response and Implications of The Ogden Rate

Although it has been increased, insurers have voiced disappointment in the new Ogden Rate, saying it ‘doesn’t go far enough’. Indeed, there was a general expectation in the market that the new rate would be between zero and 1 per cent. As a result, many insurers believe that claimants will remain overcompensated with the new rate.

As for employer implications, insurance experts estimate that the new rate will cause motor insurance premiums to increase for both UK drivers and businesses. Employers may also be expected to implement stricter policies to prevent motorist-related accidents.

Willis IRM can be trusted to keep you up-to-date with any implications to your existing insurance programme and we will work tirelessly with insurers to minimise any impact.

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