Ogden rate review – how the insurance industry has reacted

Insurance Business gathers responses from across the sector

Ogden rate review – how the insurance industry has reacted

Motor & Fleet

By Paul Lucas

It’s fair to say it’s been a busy morning at Insurance Business on the back of today’s announcement that the Ogden rate will change from -0.75% to -0.25%. Since breaking the story earlier, we’ve been receiving a host of comments from leading players throughout the industry and beyond – and here we gather them together to give you an overview of the differing opinions out there.

What they’re saying… the insurance industry…

Association of British Insurers
“This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money,” said Huw Evans, director general of the ABI. “A negative rate maintains the fiction that a claimant and their representatives will knowingly choose to invest their damages in a way that would guarantee losing them money. This will remain the lowest discount rate in the Western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital.”

“The Lord Chancellor's announcement today is disappointing to say the least and doesn't provide the equality of compensation that we would have hoped for and expected,” said David Williams, managing director of underwriting and technical services at AXA Insurance.

“A negative rate simply does not reflect the economic reality of the investment opportunities for those receiving lump sum payments and, whilst reform was certainly needed to ensure fair compensation for accident victims, the rate announced today causes other problems.

“Minus 0.25% is below the level that most commentators were expecting, below the rate insurers have been using for pricing, and below the level most claims have been settling at whilst we awaited the announcement.

“The new rate sadly may stop the reduction in motor insurance premiums we have seen in recent months, as well as placing a huge burden on the NHS.”

“LV= has always been committed to providing the fairest possible settlements to our most seriously injured road users,” said Martin Milliner, LV= general insurance claims director. “Today’s announcement while replacing the absurd and fiscally irresponsible decision to cut the Ogden discount rate to -0.75%, doesn’t in our view go far enough. At this level we believe that claimants will remain over-compensated, thus undermining the common law principle of 100% compensation. This means that uncertainty will remain for claimants, lawyers and compensators alike as this rate will be surely challenged once again at the next review in five years’ time.”

“Despite a lengthy engagement with the insurance sector on how to achieve a balanced rate, we are greatly disappointed with today’s announcement,” said David Nichols, Zurich’s chief claims officer.

“It’s essential that claimants get the compensation they are entitled to following an injury. However, the Government’s failure to change the discount rate to a balanced level will only serve to increase the cost and, therefore, affordability of certain types of insurance. This rate is likely to reduce both market coverage and affordability for higher risk customers such as road hauliers, commercial fleets, young drivers and older drivers. It will also have a financial impact on public liability cover for the public sector and businesses.”

What they’re saying… the law firms…

Forum of Insurance Lawyers
“It is very disappointing that the numerous representations made by FOIL and the insurance industry have failed to be taken into consideration,” said Tony Cawley, member of FOIL and partner at Clyde & Co. “Although the Lord Chancellor refers to the new statutory test in the announcement, FOIL does not believe that the new rate reflects how claimants actually invest their damages. Today's new confirmed rate will be particularly concerning to the insurance market generally but also to many public bodies.”

“Today’s announcement by the Lord Chancellor confounds market predictions of a positive rate and risks continuing overcompensation,” said Mark Burton, Kennedys partner. “It is to be hoped that the Lord Chancellor’s statement of reasons offers meaningful transparency to compensators about the real-world net returns achieved by properly-advised claimants from investing in a low-risk mixed portfolio, considering the significance of that data to the review outcome.

“From a claims-handling perspective, parties can at least now engage with more certainty during the next five-year review cycle. Practitioners deserve a lot of praise for the creative ways in which they have continued to settle cases whilst awaiting a resolution. The new statutory process of regular reviews should ensure that the market does not experience similar disruption again.”

Osbornes Law
“David Gauke is to be congratulated for resisting pressure from the insurance lobby to set a higher rate than this, which would simply have increased insurers’ profits at the expense of badly injured people,” said Ben Posford, head of the catastrophic injury department at Osbornes Law.

“Investing damages that are needed to provide for an injured person is difficult at the best of times, and given the state of interest rates – which are likely to fall further in the event of a no-deal Brexit in particular – there was no justification for raising the discount rate any higher.”

Minster Law
“We broadly welcome this humane decision by the Lord Chancellor, which will ensure that critically injured people are properly funded, and the principle of 100% compensation is maintained.

“Although a revised upwards rate at minus 0.25% will reduce compensation payments (previously -0.75%) the new rate does reflect the fact that the government accepts it is a risky and costly business for claimants to invest their compensation successfully in order to fully fund the enormous changes in their lives following serious injury,” said Stuart Hanley, deputy head of Minster Law legal services.

“The revised rate also mirrors the likely outcome of the Damages Act in Scotland, where we understand the Scottish government is due to confirm a -0.25% rate, ensuring there is a level playing field across the UK.

“In 2017, when Liz Truss MP, then Lord Chancellor, re-set the discount rate at -0.75%, she stated: ‘The law makes clear that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life.’

“Striking the appropriate balance is of course a difficult task but, on balance we have always believed the system should support the injured person first and foremost, as that, in the end, is what we pay our insurance for.”

What they’re saying… the rest

“Today’s announcement marks another significant chapter in the decades-long legal story on how the discount rate for personal injury claims should be set,” said James Rakow, insurance partner at Deloitte. “In light of the requirement for the Lord Chancellor to consider a low risk investment portfolio and the impact of investment management costs and tax, remaining in negative territory was always on the cards and should not have come as too much of a surprise.

“Consumers might expect to see decreases in their motor insurance premiums as a result of the new rate. Today’s announcement marks the end of the recent uncertainty surrounding the discount rate and sets the tone for future reviews.”

Association of Consumer Support Organisations
“We welcome the change in policy that ensures levels of compensation for catastrophically injured people are now subject to proper review,” said Matthew Maxwell Scott, executive director of ACSO. “Since the financial crash, the discount rate for many years hugely favoured insurers at the expense of injured people.

“The Chancellor’s decision to set a -0.25% rate is a sober assessment of the facts, and regular reviews will ensure that the rate can be amended every five years to take account of interest rates, investment returns and other economic data.

“It is of course vital that badly injured people get what the courts decide is due, and their funds are sufficient to enable them and their loved ones to get the best available care.   In making his decision, The Lord Chancellor perhaps had in mind the risk of undersettlement bringing significant future problems, including the potential risk that the state has to step in after the compensation runs out.

“The insurance industry is contracted to protect the public in the event of a serious injury, in return for which motor and many other insurances are compulsory. The discount rate must always reflect that contract, and meet the obligations of insurers to look after injured people, whatever the cost.” 


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