The Ogden rate will be well-known to insurers and perhaps a little less familiar to those not directly involved in the insurance industry, however it plays a pivotal role in the process of insurance pay-outs in the event of a claim.
Essentially, the Ogden discount rate is a calculation to ascertain how much interest the insurance claimant would earn if they were to invest their compensation – with the higher the Ogden rate, the lower the lump sum paid by the insurance companies as it assumes better annual investment returns for those amounts.
In 2017 the government significantly cut the rate from 2.7% to -0.75% with the huge drop meaning insurance companies faced much larger payouts than previously envisaged. In response to the outcry from insurers, the rate was once more amended by the government during the summer this year to -0.25%. Whilst this represents an improvement for insurers, the general consensus amongst businesses was that the rate would be nullified to 0%.
“This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money,” said Huw Evans, director general of the Association of British Insurers.
“This will remain the lowest discount rate in the Western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital,” Evans said.
On the other side of the argument are potential claimants, for whom the latest Ogden rate change is good news, with the Association of Personal Injury Lawyers welcoming the new rates;
“The government has faced sustained pressure from the insurance industry to set a rate which would not be appropriate for injured people, who should not be forced to take any risk with their investments,” president Gordon Dalyell said.