Money

Discount rate reset comes as blow for UK insurers


The UK government has reset the rate used to calculate damages payments for people who are seriously injured in accidents, but the scale of the change has fallen short of insurance industry expectations.

The announcement will cut the amount that insurers have to pay out, but not by as much as many in the industry had expected.

The so-called Ogden discount rate is used to assess how much accident victims should be given as a lump sum to be used over the rest of their lives. It corresponds to the investment return that the victims can expect when they invest the money. The higher the Ogden rate (and hence the assumed investment return), the less insurers have to pay out as a lump sum.

The rate has been set at -0.75 per cent since 2017, but the government last year legislated to change the way the rate is calculated.

The first calculation under the new method was unveiled by Justice secretary David Gauke on Monday morning. The rate will rise to -0.25 per cent.

Analysts had expected the rate to rise to between 0 per cent and 1 per cent. A higher number would be better for insurance companies and worse for accident victims.

Given that the rate is used to calculate very large payouts, small changes can have a big impact on insurers’ costs.

Martin Milliner, general insurance claims director at insurer LV said: “Today’s announcement whist replacing the absurd and fiscally irresponsible decision to cut the Ogden discount rate to -0.75 per cent, doesn’t in our view go far enough. At this level we believe that claimants will remain overcompensated, thus undermining the common law principle of 100 per cent compensation.”



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