Are motor insurance premiums set to rise after the Ogden Tables Revision?

Ogden Tables are a set of statistical tables that are used to calculate compensation in Court for personal injury and fatal accidents. The announcement in February that the injury claims discount rate would fall to minus 0.75% was a big surprise to many Motor Fleet Insurance Brokers. For the past 16 years the discounted rate, as it is called, has been set to a typical rate of 2.5%.

What is the Discount Rate?

In plain English it is a rate setting agreed by the Lord Chancellor many years ago (originally back in 2001) which is applied to large personal injury compensation payments. The rate is used in the calculation of future damages claims in relation to loss of earnings and the need for medical care and treatment. It is used to adjust these payments based on the interest that a claimant can expect to earn on the back of investing the money.

How does the reduction in the rate affect the Insurers?

The timing of this change was not a surprise to insurers and many had planned for a reduction of sorts, however the actual reduction in the rate was substantial and a lot higher than industry experts were expecting. Many were expecting reductions between 1.00% and 1.50%.

The actual change amounted to 3.25% and understandably there is a great deal of concern over the implications of this change. This means that anyone receiving compensation payments based on lump sums will now receive significantly higher payments than before the change in rates took place.

In the past, in practice, many claims were met through ‘periodical payments’ with an annual payment to the claimant providing them a guaranteed income and reducing the risk of investment. However, the changes will make lump sum rewards much more attractive and lead to an additional financial hit for the defendants.

The changes will affect claims that include bodily injury; many reports have focused significantly on products including Employer's Liability, Public Liability and Motor Insurance, it would be foolish to think that the impact will not resonate around the rest of the market.

How does this affect policyholders?

The Lord Chancellor announced that this change will come into place on 20 March. Unfortunately consumers, business and public sector organisations can only expect an increase in their insurance premiums as a result. ‘The only way is up’ is often a phrase coined when the outlook is bad and in this case, unfortunately this continues as policyholders can expect to see an increase in premiums as Insurers amend their rating to take this change into account. The change has resulted in hundreds of millions of pounds being wiped off of company’s bottom lines in an instant and going forward they are going to have to make substantially larger payouts.

Insurers have requested discussions with the chancellor following the announcement and these are ongoing, so we may yet see an adjustment.

To what extent this will increase premiums is at present unknown and will mainly affect a majority of private and commercial policyholders. Projections have been made to estimate up to a £75 increase on a comprehensive individual motor insurance premium. We will continue to survey the outcomes of this announcement and provide updates in due course.

If you have any queries in relation to this information then please do not hesitate to contact us to discuss further. Click this link which provides a clear example of the changes and cost to Insurers.