On Monday, Insurance Business offered a round-up of comments from all sides following the highly anticipated announcement on the personal injury discount rate aka the Ogden rate. In case you missed it, here it is: Ogden rate review – how the insurance industry has reacted. Now we bring you more insights, all with a common theme – that of disappointment.
“The change in the discount rate from -0.75% to -0.25% is a small step in the right direction but nowhere near enough,” was how Graeme Trudgill (pictured) of the British Insurance Brokers’ Association (BIBA) put it.
“The Lord Chancellor says in his reasoning that he took into account the Wells vs Wells case when setting the rate, in that claimants should neither be under- nor over-compensated,” said the BIBA executive director. “A rate of plus 0.25% would have achieved this as the Government Actuary’s advice to him showed it would have brought a 50/50 chance of the claimant being under- or over-compensated.
“The Lord Chancellor instead opted to reduce the rate to only -0.25%, meaning there is less of a chance of claimants being under-compensated, but a much higher chance of them being over-compensated. The premise that a significant number of low-risk investments will lose money is incongruous with market practice.”
Also unimpressed with the rate change is the Lloyd’s Market Association (LMA), whose non-marine underwriting head David Powell pointed to a “very disappointed” market.
Powell explained: “While the change is positive for compensators, such a small movement that retains a negative rate is a severe disappointment and well below the level underwriters were expecting. The new rate will sustain the vast majority of reserving costs that were imposed on the insurance industry when the rate was previously changed from +2.5% to -0.75% in 2017.
“The highly competitive nature of our industry means that reductions in costs will quickly influence premiums. However, this positive but small change is unlikely to lead to substantial price reductions for policyholders.”
Not all hope is lost, though, with the LMA looking forward to the possibility of having a dual rate – an idea it has long advocated – given Lord Chancellor David Gauke’s statement making reference to a future consultation.
“We will await this consultation with interest, as this route may be the only prospect in the short-term that could provide some relief to motor and casualty insurance customers now facing sustained pressure on premiums,” asserted Powell.
Aside from insurance companies and trade bodies, law firms have also been quick to express their views on the matter. Clyde & Co partner Kate Duffy went as far as saying: “This news has wiped the smile off the face of the many insurance actuaries still celebrating England’s cricket win.”
She called the -0.25% rate a poor result.
“Yes, it’s better than the proposed -0.75%, but it remains woefully inadequate,” noted Duffy. “From the industry’s perspective, it tips the odds too much in favour of claimants at the expense of insurance-buying motorists and businesses, who will inevitably have to dig deeper for insurance costs.”
Sharing a similar sentiment is BLM partner and head of the firm’s catastrophic injury team Andrew Hibbert, who described the announcement as a disappointment both to them and their insurance clients. According to Hibbert, BLM has been settling cases at a minimum +0.5%, with the expectation that the adjusted rate would be around that number.
“I am doubtful that this new rate removes the risk of over-compensation which the government itself said was significant at the previous rate of -0.75%,” he declared. “The more positive aspect is that the setting of the discount rate should at least remove uncertainties associated with resolving claims and should help bring cases to a close more quickly.”
Trudgill, however, believes “the public and policyholders may continue to bear the brunt of this development.” The BIBA official stated: “Compared to early 2017, claims awards are likely to remain higher with the resultant unintended consequences affecting premiums and levels of liability cover.”
Hastings Group Holdings, meanwhile, announced that it expects a one-off pre-tax charge of £8.4 million to its 2019 financial statements in light of the new Ogden rate.
“The group’s insurance subsidiary has held best estimate reserves consistent with an Ogden rate in the range of 0% to 1%, in line with the range indicated by the government previously and the rate at which large bodily injury claims have been settling,” it said in a regulatory filing.
“The company can confirm that the best estimate will now be updated to reflect the change in the Ogden rate to -0.25%.”