News on an Increase in the Ogden Discount Rate

The result of the UK Government’s first review of the Ogden Discount Rate has fallen short of market expectations.

The Ogden Discount Rate is used to calculate the amount of compensation a severely injured person will receive to reflect the return they will earn when that money is invested. The object is to make sure a person has the necessary financial security to provide for their care and loss of earnings.

The lower the rate, the larger the sum insurers have to pay for personal injury claims, as it assumes lower annual investment returns for that amount.

It has been announced on 15 July that the Ogden Discount Rate will slightly increase from -0.75% to -0.25%, with effect from 5th August 2019.

The insurance industry had anticipated a positive rate as the Government had indicated to the industry and financial markets that the rate would be set between 0% and 1%.

Insurers therefore based their claim costs on this, which has helped keep the premiums down for customers. As the new rate is lower than anticipated, it is likely that insurers will have to set aside more money to pay for future claims which will obviously put increased pressure on keeping premium costs down.

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