The UK government has given the insurance industry a piece of news that will be well received by many: the launch of the Civil Liability Bill, which is set to also include revisions to the Ogden discount rate.
The change to the Ogden discount rate in 2017 sent waves through the insurance industry, and drew hastily recalculated report figures from insurers reeling from the impact on their bottom lines.
The rate – set at -0.75% since March after sitting at 2.5% since 2001 – is set to be reviewed by the government, with the key change being that the rate will now be based upon a low-risk diversified portfolio rather than simply index-linked government securities.
The Ogden discount rate is used to calculate the compensation payments claimants receive for long-term injuries, taking into account how much they can potentially earn through the sum’s investment.
A negative figure suggests an expected reduction rather than appreciation in value of the payment over time, and so compels insurers to pay an additional agreed sum. The inference of the government’s planned revision is that the rate will potentially become positive again, enabling insurers to release funds that had previously been put in reserves to protect against future payouts.
Motor insurance is one such market where the changes will undoubtedly be welcomed – giving insurers the capability to pass on savings to consumers. The market has been under scrutiny for rising premiums in recent years, and the change in the Ogden discount rate will enable customers to potentially benefit from lower premiums.
The Civil Liability Bill also holds another potential benefit for the motor insurance market, with whiplash claims also being on the agenda for reform. Whiplash claims have long been associated with the rising premiums seen within the motor insurance market. Reforms to claims related to these injuries, while maintaining access to justice for genuine cases, will drive benefits for insurers and insurance alike.
The full impact of the proposed reforms is still unclear as the bill is not expected to be enacted until next April. A key question is whether, directly following this or even pre-empting it, the finely tuned competitive nature of the market will drive a twitch on rates before insurer savings are evidenced – just as occurred in the period following the enforcement of the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act.