A fall in the personal injury Discount Rate: implications
CII Policy Briefing
02 March 2017
21 June 2018
Policy and Public Affairs
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.
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