On 27 February, the Lord Chancellor announced that the discount
(or 'Ogden') rate used to calculate personal injury claims has been
reduced from 2.5% to -0.75%.
The decision implies that the Government expects that a claim
recipient investing the damages settlement over their remaining
life would get a negative return on investment, and the insurer
must top up the expected loss. It will have significant impact on
motor and liability policies, as well as public bodies that award
compensation, such as the NHS.
Although a correction in the rate was expected by most observers
in both sides of the debate, nobody expected the fall to be so
severe as to send it into negative values. The announcement follows
a long period of inactivity following a consultation and even a
legal challenge for further consultation.
The announcement was met with a phalanx of criticism from across
the insurance sector, highlighting the implications of the
significant drop in the Discount Rate, and the fact that this will
transmit to higher premiums for 36 million motor and liability
policy holders, particularly those with higher risks of claiming
such as young drivers or commercial users.
View the attached briefing »