On Monday 27 February the Lord Chancellor, Liz Truss, made an important announcement in respect of the Discount Rate, which is used to calculate the amount of compensation to be paid to seriously injured individuals.

The Discount Rate, also known as the Ogden Rate, forms part of the calculation to determine the level of award in respect of cases involving serious injury. The adjustment of this rate has changed from 2.5% to -0.75%, which will apply to all claims settled in England and Wales on or after the 20 March 2017, regardless of when the loss was incurred or notified.

This means that, rather than any lump sum award being discounted to allow for a 2.5% investment return, the indemnity settlement will be increased, reflecting a decision that over the long term there is predicted to be a negative return on investment. The effect of this change will be to increase the value of claims for future financial loss.

The Discount Rate has not been adjusted since 2001, despite interest rates falling during that time, and the recently announced reduction in the rate is designed to reflect the fact that less investment income is available today compared to when the rate was last adjusted and has been introduced to ensure that claimants are more appropriately compensated over the remainder of their lives.

The Discount Rate applies to injury claims, so any product which provides cover for Motor (including Motor Trade) or Liability (Employers’ Liability and Public & Products Liability) will be affected. This includes Property-led products such as Property Owners and Landlords where liability cover is included.

What impact will the Discount Rate changes have?

The heightened cost of claims for insurers will mean an increase in the cost of insurance for customers, in respect of those products that are affected, regardless of where the insurance policy is bought from.

At Finch Group, we remain committed to working with you to ensure you manage risks effectively and we will continue to work closely with our insurance partners to minimise the impact of any increases in prices, as best we can.

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