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Alan & Thomas Commercial Insurance | News

Much Ado About Ogden

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When an incident occurs and someone is left with serious injuries because of it, the courts will award an amount of money to that person in compensation. This is usually paid as a lump sum and the amount they actually receive is adjusted to take into account the additional income they could expect to earn by investing it.

From 20 March 2017, the discount rate (also known as the Ogden rate) was reduced from 2.5% to -0.75%. This change may not seem significant on the face of it but it now means that where insurers previously reduced the amount paid in personal injury cases, they now have to increase payment.

The compensation amount that is awarded in a claim is determined by taking numerous variables into account including: age, sex, current earnings, education, whether they have dependents and the list continues. The discount rate is then applied to the lump sum and we have some examples of the effect the change has made to settlement awards:

  • A 23 year old who had to have his lower leg amputated would have previously been awarded £1,093,809 but following the change in the discount rate, this would increase to £2,072,108!
  • A person who suffered serious brain injuries at the age of 21 would have previously settled their claim at £9,072,028, but now the claim would settle for £20,020,103!
  • A fatal accident on a construction site of a person aged 55 at the time with a teenage daughter. The claim would have previously settled at £721,009 but after altering the discount rate, this would increase to £1,065,020. 

These examples show how massively the settlement amount jumps because of the change in the discount rate. It is estimated that the cost to UK insurers for claims that are being dealt with right now will be in excess of £7billion. The additional cost that the insurers will see each year is expected to be around £2 billion. We are already starting to see motor and liability premiums increase as a result of the change.