What does the amended Ogden rate mean to the public and voluntary sector?

  • The Discount Rate reduction in February 2017 gave rise to an increase in the size of compensation awards for large and catastrophic claims
  • The latest amendment announced recently leaves the Discount Rate in a specified negative position
  • The insurance industry however, consider the Impact Assessment to be heavily flawed, not accurately reflecting the market impact

The Discount Rate reduction in February 2017 gave rise to an increase in the size of compensation awards for large and catastrophic claims. Since then there has been much discussion on the issue and the need for the Discount Rate to be set at a more realistic level.

As a result to date, the insurance industry has been reserving and settling claims based on a more positive Discount Rate, in the region of 0.5%, despite the reduction to -0.75%. The amendment announced recently leaves the Discount Rate in a specified negative position (set theoretically for the next 5 years), with Insurers and local authorities alike now needing to reassess all claims to reflect the effects of the Discount Rate, to ensure reserves reflect to date the correct position. This will inevitably mean estimates increasing and on large and catastrophic claims the effects will be significant.

It is also worth highlighting that local authorities themselves are the largest insurer of their own risks due to the significant deductibles carried by many. Whilst, as previously mentioned, the biggest impacts is on larger claims, usually carried by the insurer, the lower level claims will often be paid by Councils.

It is important therefore for local authorities to review claims estimates, to ensure the changes over the last two years are adequately reflected and that appropriate provisions are made within the insurance fund. A knock on effect of amended reserving on claims below the deductible, is the need to review the level of any aggregate stop which Zurich Municipal will review with our customers as part of the normal renewal discussions.

The former Lord Chancellor, the Rt Hon David Gauke MP, in announcing the rate change, recognised the impact this decision has on businesses, the public sector and charities with regard to the amount of damages that may be payable in any personal injury claims.

The insurance industry however, consider the Impact Assessment to be heavily flawed, not accurately reflecting the market impact. Of course, since this announcement a new Lord Chancellor, the Rt Hon Robert Buckland has been appointed, although there is no suggestion a review of the rate will be carried out.

If you need any support from Zurich Municipal as go through a claims review exercise, please do not hesitate to contact us.