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Insurance Industry Response to Revised Ogden Discount Rate

Following the Lord Chancellor’s announcement in July that the Ogden Discount Rate, applicable to the United Kingdom excluding Scotland, will only marginally increase from minus 0.75% to minus 0.25%, with effect from 5 August 2019, Insurers have now crunched the numbers to reveal how this will affect future Motor and Liability Insurance limits of indemnity considerations.

Written by Paul Brown on 28th August 2019

Insurance Industry Response to Revised Ogden Discount Rate

The Ogden Discount Rate is used by courts to calculate how much compensation is awarded to victims and in March 2017 the then Lord Chancellor, Liz Truss, unexpectedly slashed the rate from plus 2.5% to minus 0.75% and in July this year the then Lord Chancellor, David Gauke, reset the rate at minus 0.25%.

The Insurance sector was disappointed with this result as a negative rate maintains the suggestion that a claimant and their representatives will knowingly choose to invest their settlement damages in a way that would guarantee losing them money and because the government had previously indicated to the industry and the financial markets that the rate would be reset to between 0% and 1%. As a result, insurers had been calculating their claims costs based on this multiple.

To explain how the new Ogden Discount rate will impact on limit of indemnity considerations Allianz Insurance has now published the following illustration of compensation payments based on minus 0.25% and, also at lower and higher rates for a 36 year-old male paraplegic unable to return to work following an accident.




Pre March 2017



March 2017 to August 2019

Minus 0.75%



August 2019 Onward 0%



August 2019 Onward

Minus 0.25%


Pain Suffering & Loss of Amenity





Loss of Earnings





Care Package










Deputy Fees / Prosthetics





Legal Costs





Total Compensation





As the table shows the same claim, post August 2019, will cost 78% more to settle than pre March 2017 and as the new rate is lower than anticipated, it’s likely insurers will have to increase the reserves to pay future claims which in turn increases the pressure on Motor and Liability Insurance premiums.

Due to the compounding effect of the new Ogden Discount Rate settlements for even younger claimants will be much higher. Also, some claims will have multiple claimants against the policy limit of indemnity, so limits of indemnity purchased and considered adequate prior to 2017 may no longer be adequate. Certainly the traditionally purchased Public and Products Liability limits of £5m and £10m and the Employers Liability limit of £10m could leave a policyholder exposed.

The impact of the new rate is not just applicable to the insurance industry and its customers. The single biggest financial impact is upon the NHS which manages injury claim reserves of around £80bn and was calculating claims, in the interim, on a discount rate of plus 0.76% and this, of course, this cost falls upon the taxpayers of England and Wales.

A new Scottish Discount Rate is currently being reviewed with a report expected in late September for an implementation soon after. Initial indications suggest that the approach in Scotland would lead to a rate that is more favourable to claimants than in England and Wales.  

Providing seriously injured people with a fair level of compensation is absolutely the right thing to do, but it could be argued that the insurance industry is overcompensating which inevitably could lead to the need to purchase higher limits of indemnity and seeing increased Motor and Liability Insurance premiums in the future.

Speak to your usual Franklands’ contact about selecting the correct limit of indemnity to help protect your business.







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