Due to recent change to the way that personal injury claim settlements are calculated, you need to review the Limits of Indemnity required.
The “Ogden” Discount rate will be reduced from 2.5% – 0.75% as announced by the Lord Chancellor earlier this year. This change was effective from the 20th March 2017 and applies to all personal injury claims settled in England and Wales. Where there has been very serious injury and long-term financial loss, including care costs, this discount rate is used in calculating damages.
The cost of large personal injury claims will, as a result of this change, increase substantially. This could, depending on the age of the claimant and size of the likely compensation, be well in excess of 250%. Particularly affected are those claims in excess of £100,000.
Insurers within this market have responded in various ways, however general consequences are:
- Reserves will be reviewed and are likely to increase for current unsettled claims. There is a possibility that increases in eventual settlements could take claims beyond the Limit of Indemnity that applied at the time of the loss, so there is a small chance that full cover might not be in force. If this situation might affect you we will let you know.
- An immediate review of all affected Limits of Indemnity needs to take place with the aim to ensure that they remain adequate. Advice will be offered on the levels you should consider and we are happy to provide quotations for any higher limits required.
- You will find that individual insurers will take differing approaches which will be dependent on their policyholders’ circumstances, the nature of their business, claims history and whether they feel they are particularly exposed to severe injury loss. An advisor will discuss with you the position taken by your insurer in advance of renewal and come to an agreed brokering strategy with you.
- Rate rises on claims heavy risks to fund an increased cost of claims are likely to be applied where Insurers have not taken into account these changes in their existing premium calculations. Insurance agreements usually contain a provision that allows an insurer to increase rates where a significant change in an external risk factor arises, as a result such rate increase are likely not to be considered as breaches of Long Term or Rate Guarantee Agreements. You will be notified of any change affecting the pricing of your policy.
- To maintain long-term price consistency the continuity of insurer is potentially more important than ever.
There is still plenty of capacity and competition for premium from insurers despite the above. A broker’s support at times like these can be invaluable. As an independent broker we can offer tailor made insurance that is specific to the risks your business faces. We offer a professional personal service.
Please contact us if you have any general queries surrounding these change or wish to know whether you might be affected regarding an outstanding claim. Please contact Sam Jones at sam.jones@bgi.uk.com
Claims Example
AXA, one of the largest and longest standing insurance companies in the world, has provided some quite startling illustrated examples of how the Ogden rate change will affect the levels of compensation payable.
They have said that a 30-year old plasterer with a traumatic brain injury would previously have been paid out £2.24 million by an insurer would now expect to receive £6.14 million. And an 18 year-old male claimant with a spinal cord injury who would previously have received a settlement of £7.6 million would now see that settlement rise to £19.3 million.
These figures really do bring home the extent of the effects of the rate change.
