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Ogden Rate Change

What is the Ogden Rate?

The discount rate has been traditionally applied to lump-sum payments made by insurance companies to claimants following injuries sustained in motor accidents, accidents suffered at work or on another’s premises. The thinking behind this is that the claimant is receiving a large lump sum payment which they could invest to receive future investment earnings. There is a concern that this leads to victims being overcompensated.

Because investment returns in recent years have been low, the reduction in the discount rate reflects the fact that claimants will receive less on their invested lump sum. As the rate has changed to a negative figure insurers will have to top-up their settlements.

We’ve now seen the first case settled following the reduction in the discount rate from 2.5% to -0.75%.  It was valued at £3.8M but under the new rules this rose to £9.3M. (From external source.)

Other general factors are also pushing insurance costs upwards:

• Higher compensation awards mean indemnity limits under some liability and motor policies may be inadequate.  Some businesses may need to buy higher limits at extra cost.

• On 1st June 2017, insurance premium tax (IPT) increases by 20% to 12%.  

How will this affect insurance customers?

As it stands, it’s unclear exactly how much the cost of some insurance might be affected by this change. The Chancellor of the Exchequer Philip Hammond will be meeting with representatives of the insurance industry to assess the impact of the rate change and there will be a consultation before Easter to consider options for reform.

If you would like to talk to us in more detail about how these changes might affect you and your insurances then please contact us today.


Pace Ward Limited & Pace Ward Financial Solutions Ltd

6 Ridge House, Ridgehouse Drive, Festival Park, Stoke on Trent, ST1 5SJ

Tel: 01782 286311

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Pace Ward Limited are Independent Insurance Brokers who are authorised and regulated by the Financial Conduct Authority. A member of the Compass Network. Pace Ward Ltd Registered Office - 6 Ridge House, Ridgehouse Drive, Stoke on Trent, ST1 5SJ - Registered in England & Wales Number 4812481

Pace Ward Financial Solutions Ltd is authorised and regulated by the Financial Conduct Authority. Pace Ward Financial Solutions Ltd Registered Office - 6 Ridge House, Ridgehouse Drive, Stoke on Trent, ST1 5SJ - Registered in England & Wales Number 4812481

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