Recent changes to the way lump sum payments are calculated means personal injury claimants will potentially now receive much larger amounts, a factor that is contributing towards rising insurance premiums.

When a victim of personal injury or fatal accident, occurring as a result of medical negligence, car crash or other incident, is awarded compensation, the amount they receive is adjusted according to the amount of interest they can expect to accrue if investing it. This adjustment is calculated using the Ogden ‘Discount’ rate.

Until recently, the Ogden rate was set at +2.5%, which meant that for every £1,000 of loss calculated, the insurer would pay out £975. The claimant would then be expected to earn at least 2.5% interest from the monies invested, earning them the full payment due.

On 20 March 2017, the Ministry of Justice changed the Ogden ‘Discount’ Rate from + 2.5% to – 0.75%*, which means for every £1,000 awarded, insurers are now expected to pay claimants £1,007.50, representing an additional £32.50 amount to be paid.

This change has been introduced because investment rates have fallen so low in recent times the Government has amended the Ogden Rate to cover the shortfall going forward. As claim awards are often multi-million pounds, the increase of 3.25% makes a significant difference to the monies an insurer must now pay out.

With the cost of personal injury claims increasing, insurers must ensure they have sufficient reserves to pay any awards made by the courts, and this is driving up the cost of premiums. The Association of British Insurers (ABI) expects that up to 36 million individual and business motor insurance policies could be affected.

In addition, those who hold Employers, Public or Products Liability insurance must ensure their policy provides sufficient cover to meet the larger amounts being awarded, and this is also increasing premiums.

While increased premiums look unavoidable due to the Ogden rate change, you can rely on us to work on your behalf, securing the optimum value for your cover, price and quality of service. Please get in touch with us today if you wish to review whether you are adequately covered.

* At the time of writing, a further change to the Ogden rate looks likely. Draft legislation is being put before parliament, and a decision on the new rate is still to be announced. It could possibly rise to somewhere between 0% and 1%. Please check with us for clarification.

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