Deloitte comment on the Ogden discount rate has been saved
Deloitte comment on the Ogden discount rate
15 July 2019
Today the Lord Chancellor announced an increase to the personal injury discount rate, from the current minus 0.75% to minus 0.25%, effective on 5 August 2019. This is the so-called Ogden discount rate, used when determining the amount of lump sum compensation paid for loss of earnings and future care costs. It typically affects awards for severe and catastrophic injury, for example those resulting from serious road traffic accidents or industrial accidents.*
James Rakow, insurance partner at Deloitte, commented:
“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. 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.”
Note to editors
*Further background on the announcement
Today’s announcement comes seven months after the Civil Liability Act 2018 received Royal Assent. This gave the Lord Chancellor freedom to set the rate assuming the compensation was invested in a low risk asset portfolio.
The new rate of minus 0.25% keeps it in the negative territory entered into when rate was set at minus 0.75% in February 2017. The increase of 0.5 percentage points in the rate announced today will decrease lump sum compensation payments for life changing injuries and this will decrease claims costs for insurers and other compensators. Going forward the Civil Liability Act requires that the rate will be revisited by the Lord Chancellor every five years in consultation with an expert panel and the Treasury.
The Lord Chancellor also announced that there will be a consultation on dual rates in due course. This would involve a lower short term rate followed by a higher long term rate after a ‘switchover period’.
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