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'The insurance industry is currently overcompensating'

'The insurance industry is currently overcompensating' | Insurance Business

It’s been half a month since the Ministry of Justice dropped a bombshell by announcing the marginal increase in the personal injury discount rate to -0.25%, which is outside the previously indicated adjustment range of between 0% and 1%. The issue is far from dying down, though, as now it’s the turn of Allianz Insurance Plc to sound off on what it called a disappointing result.

In a new blog post, the UK arm of German group Allianz pointed to where the Ogden rate hit will be seen the most. It also went on to describe the adjusted rate, which is effective on August 05, as “bad news all round.”

Allianz Insurance stated: “The impact is not just directly to the insurance industry and its customers. The single biggest financial impact will be felt by the NHS (National Health Service) which therefore impacts UK Plc and tax-paying individuals in England and Wales.

“The NHS, which manages injury claims reserves of around £80 billion, was valuing cases in the short term on a discount rate at +0.76%.”

Similarly, insurance companies have used the 0%-1% range as their basis for claims costs.

Look back at the 2017 announcement here

“As the new rate is lower than anticipated, it’s likely insurers will have to increase the money set aside to pay future claims which in turn increases the pressure on premiums,” added Allianz Insurance. “This is an unwelcome outcome for customers as well as insurers and brokers.”

To illustrate its point, the Allianz unit provided a sample computation of compensation payments for a 36 male paraplegic unable to return to work, depending on different personal injury discount rates.

 

-0.75%

-0.25%

0%

1%

+2.5%

Pain, Suffering & Loss of Amenity

£200,000

£200,000

£200,000

£200,000

£200,000

Loss of Earnings

£1,282,400

£1,180,000

£1,132,800

£969,600

£782,000

Care Package

£12,050,000

£10,468,000

£9,786,000

£7,614,000

£5,506,000

Rehabilitation

£301,250

£261,700

£244,650

£190,350

£137,650

Deputy Fees/ Prosthetics

£903,750

£785,100

£733,950

£571,050

£412,950

Legal Costs

£400,000

£400,000

£400,000

£400,000

£400,000

Total compensation

£15,137,400

£13,294,800

£12,497,400

£9,945,000

£7,438,600


Offering his insights on the matter, Allianz Insurance chief claims officer Graham Gibson said: “We believe providing seriously injured people with a fair level of compensation is the right thing to do but the insurance industry is currently overcompensating.

“The latest announcement signifies a move in the right direction but the new rate of -0.25% does not go far enough. An opportunity has been missed to further tackle the increased cost of settling personal injury claims which play a significant part in the eventual cost of insurance for customers.”

The -0.25% calculation is not applicable in Scotland, where a new discount rate is currently being reviewed.