The ‘Ogden’ Tables are a set of actuarial tables
used in personal injury and fatal accident cases, named after Sir Michael Ogden
QC who chaired the working party at their creation. They are designed to make
it easier to calculate future losses in these cases.
The tables calculate life expectancy rates, loss of
earnings, multipliers for lifetime loss, single loss and crucially when courts
are awarding lump-sum compensation to victims, a discount rate which assumes
the lump-sum will be invested and therefore an adjustment is made for the
likely interest the award will achieve. The higher the discount rate, the lower
the lump-sum awarded.
This discount rate, also known as the Ogden rate,
is set by the Lord Chancellor, and hasn’t been adjusted since 2001 and with
interest rates having dropped sharply since, campaigners have been calling for
a change with the Association of Personal Injury Lawyers (APIL) as they believe
the rate was far too high as it assumes that the lump sum will achieve a
greater return than it’s able to achieve, so there’s a possibility that the
injured party will run out of money.
What has changed?
The Lord Chancellor has therefore decided to lower
this discount rate from +2.5% to -0.75% with effect from 20th March 2017, as
the law makes it clear that claimants must be treated as ‘risk averse’
investors, reflecting the fact they are financially dependent upon the
lump-sum.
These changes will also have a massive impact on
the insurance sector, as it could mean that reserves for past liability claims
not already paid may rise, whilst future claims could also go up. The overall
cost to the industry on all impacted claims is predicted to be £7 billion.
According to Direct Line, just a 1% decrease in the
Ogden rate would take £190 million off its profits. Insurers are now
re-calculating their claim reserves accordingly.
So what does it
mean for you?
Whilst insurers have engaged with the Chancellor,
and a commitment has been given to review the process, ultimately this means
that costs will be passed on. In particular the premiums for Motor, Employers’,
Public and Products liability insurance will increase as the claim reserves for
personal injury or fatal accidents will be higher.
Example:
A 30 year-old male
has life-changing injuries, needing long-term care following an accident at
work. Following the Ogden rate change, the resultant claim settlement awarded
for his loss of earnings and the costs of nursing care now increases from
£2.791m to £6.325m (an increase of 127%).
In particular, classes of insurance deemed as
higher risks are likely to increase more. Insurers call this a ‘hardening’
market.
What can you do
about it?
Discuss the matter with your broker on the best
steps you can take rather than wait until renewal.
Call: 01789 761 670
Web: www.morrisoninsurance.co.uk