The Ogden rate is an important factor for any insurance broker to understand, as it affects how much claimants can expect to gain from a personal injury claim and how much insurers will be charging for them to pursue it. A recent alteration in the law in regard to the Ogden rate is causing major ripples in the insurance industry, but just what has changed and why does this make a difference?

As a broker, you’ll know that when a person makes a personal injury claim, they’re not only out for what they can get. More often than not they’re claiming because that injury is about to affect their whole life – and that includes their finances. If the claimant can no longer work, any compensation they gain will need to last them. This is where the Ogden rate – sometimes known as the discount rate – comes into play.

When a claimant with a life-changing injury accepts a lump sum insurance payment, this initial amount is adjusted depending on the interest they can expect to earn by investing that money (thereby keeping them going for longer, supposedly covering loss of earnings and care costs). The Ogden rate is the amount that the lump sum is adjusted. So basically, it’s a calculation used by the courts to work out how much the insurance companies should ultimately pay out.

Previously, the Ogden rate was set at 2.5% – so for every £1000 lost by the claimant, the insurer would pay out £975. It was expected that the claimant would then be able to earn 2.5% interest a year by investing that money, thereby making up the rest of what they were due. In March 2017 however, the rate was slashed to -0.75. For every £1000 lost then, the insurer will now have to pay out £1007.50.

So, what does this mean for the world of insurance? The change will cost the industry millions of pounds, and it’s not great for claimants either. Insurers are having to pay out more, so they’ll be charging more. The cost of a personal injury claim is going to increase and insurers will also increase their reserves on existing claims so that they can meet the awards made by the courts. As a result, the cost of motor, employers, public and products liability will be driven up.

If you have any questions or would like to discuss teh implications of the Ogden Rate please Contact Us.