Deloitte comments on a decrease in the Ogden discount rate
27 February 2017
The Lord Chancellor today announced a decrease to the Ogden discount rate from the current 2.5% to minus 0.75%. This is the 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 claims, for example those resulting from serious road traffic accidents or industrial accidents.
This is a landmark decision in the decades-long legal debate and marks the end to the uncertainty surrounding the discount rate that has been around since the Ministry of Justice consulted with stakeholders in 2012. Given the scale of the decrease which will significantly increase compensation payments, the impact of this reduction of 3.25 percentage points ranks above the House of Lords’ judgement in 1998, taking the rate from 4.5% to 3%, and 2001 when the Lord Chancellor reduced the rate from 3% to 2.5%.
The Lord Chancellor has also announced that the Government will review the framework under which the discount rate is set.
James Rakow, insurance partner at Deloitte, commented: “In light of current low levels of investment return, the rate cut should not have come as a surprise. Insurers have shock absorbers in place, such as reinsurance protections and capital resources, to help them weather the financial effects of today’s announcement. Consumers should expect to see increases in their motor insurance premiums as a result of today’s announcement. Just how much will depend on the extent insurers choose to pass on higher claims costs.”
Notes to editors
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
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The information contained in this press release is correct at the time of going to press.
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