The insurance sector blasted the government today as it revealed plans to change the discount rate used to determine insurance payments for serious injuries in accidents from minus 0.75 per cent to minus 0.25 per cent.
The Ministry of Justice revealed the change to the so-called ‘Ogden Rate’ this morning following calls to raise the level from insurers, who pay out less as a lump sum when the rate is higher.
Insurers had urged the government to review a move from in 2017 to slash the rate from 2.5 per cent to minus 0.75 per cent.
But today’s reversal back up to minus 0.25 per cent is still a lower rise than many in the industry had been hoping for.
Justice secretary David Gauke said: “It is vital victims of life-changing injuries receive the correct compensation – I am certain this is the most balanced and fair approach following an extensive consultation.”
Change will hurt young and old drivers, warns Zurich
However, David Nichols, Zurich’s chief claims officer, said the firm is “greatly disappointed” with the new rate.
“The government’s failure to change the discount rate to a balanced level will only serve to increase the cost and, therefore, affordability of certain types of insurance,” he added.
“This rate is likely to reduce both market coverage and affordability for higher risk customers such as road hauliers, commercial fleets, young drivers and older drivers. It will also have a financial impact on public liability cover for the public sector and businesses.”
“Today’s announcement by the Lord Chancellor confounds market predictions of a positive rate and risks continuing overcompensation,” said Mark Burton, a partner at Kennedys leading the firm’s work on the discount rate.
He added: “From a claims-handling perspective, parties can at least now engage with more certainty during the next five-year review cycle.
“Practitioners deserve a lot of praise for the creative ways in which they have continued to settle cases whilst awaiting a resolution. The new statutory process of regular reviews should ensure that the market does not experience similar disruption again.”
New Ogden rate ‘increases legal claims risk for NHS’
Simon Kayll, chief executive at Medical Protection Society (MPS), welcomed the new rate but said it “does not come close” to the previous 2.5 per cent rate.
“We therefore expect that the cost of clinical negligence will remain very challenging for the public purse, the NHS, doctors and the wider economy,” he added, citing higher costs for legal claims.
“We welcome the speed at which the government has moved to reform the law on how the discount rate is set. The government has however been much slower in introducing a long awaited and much needed strategy to address the rising cost of clinical negligence. Urgent and bold legal reforms are now desperately needed.”
‘Lowest discount rate in the Western world’
“This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money,” Huw Evans, director general of the Association of British Insurers, said.
“This will remain the lowest discount rate in the Western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital.”
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