The Ogden Discount Rate – Why your Liability Insurance might not be adequate

With effect from March 2017, the Lord Chancellor reduced the “Ogden” Discount rate from 2.5% to -0.75%.

What is The Ogden Discount Rate?

The Ogden rate applies to all personal injury claims settled in England and Wales and is used by our Courts when calculating compensation in claims where there has been very serious life-changing injury and long term future financial loss, including care costs.

Compensation awards are designed to put the claimant in the same financial position had they not been injured. The award is based on future losses, which are likely to consist mainly of loss of earnings and cost of care.

How is The Ogden Discount Rate Calculated?

The Ogden rate is designed to ensure claimants are not under or over-compensated.  To calculate how much would be needed over the claimant’s likely lifetime, a multiplier is applied to the claimant’s financial needs – i.e. the earnings they will miss out on, the cost of care needed. This multiplier takes into account age, gender, and mortality risks in order to arrive at a figure.

In order to work out how much to deduct to account for interest on the sum provided, the insurer uses the discount rate.

The Odgen Tables list the multipliers which apply at each various discount rate, across a range of -2% to +3%.

The lower the rate, the higher the settlement of a claim is likely to be.

What does the reduced rate mean?

The Lord Chancellor changed the rate to -0.75% from the +2.5%, where it has consistently been since 2001.

The new rate means the payout due to a claimant will be much higher than the same settlement would have been at the old rate.

As a result of this change the cost of large personal injury claims will increase substantially, in some cases well in excess of 250%, depending on the age of the claimant and size of the likely compensation.

Claims in excess of £100,000 are particularly affected.

Claims Example

(Real example of an Employers Liability claim currently going through the courts):

21 year old male, earning £20,454 a year seriously injured at work and will be unable to work again.

Discount Rate                                       2.5%                             -0.75%____________

Income at the time of injury                    £20,454                         £20,454

Annual care costs                                 £132,828                       £132,828

Court of Protection costs                       £12,534                         £12,534___________

Loss of earnings settlement                   £420,943                       £777,611

Cost of care settlement                          £3,980,855                    £9,788,095

Court of Protection settlement                £375,644                       £923,630__________

Total damages (plus legal costs)             £5,416,100                    £12,071,830

This example indicates that consequently a £10,000,000 Employers’ Liability limit is no longer adequate.

We therefore urge all businesses to review their current limits of cover. We review all policies with ourselves at their renewal, therefore we will also be contacting our existing clients regarding their limits at this stage.

If you have any queries regarding the general principals surrounding these changes or where you might be affected with regard to an outstanding claim, please do not hesitate to contact us.

We are Experienced Insurance Brokers, based in Essex, and can help ensure you have the right level of cover.

If you would like us to talk you through Business or Property Insurance please get in touch with us. We can offer a no-obligation quote too. You can contact us:

• Through our Live Chat
• By emailing us at info@evansinsurance.co.uk
• You can also call us on 01708 289 525