Insurers very unhappy at discount rate


The UK Government in a surprise announcement yesterday reduced the discount rate (Ogden Table) to -0.25%. The Insurance Industry generally expected the rate to be set at 0%.

This change, announced by the Lord Chancellor’s Office will have far reaching effect on the pricing of insurance products and representatives of various leading Insurance Companies stated that the new negative rate announced does not reflect what they say is the economic reality of investment opportunities for those victims of accidents who are in receipt of lump sum payments.

It is now anticipated that this change could possibly halt any anticipated reductions in motor premiums and also lead to a significant increase in costs to the National Health Service.

Some spokespersons stated that this change would serve to contract the market and lessen the coverage available and will make insurance less affordable for what they describe as higher risk customers such as fleet owners, younger and older drivers and those engaged in the road haulage business. It is also expected that that change will impact negatively on the cost of public liability insurance in both the Public and Private sector.

The discount/Ogden rate is the discount that an insurer receives when paying compensation for persons who have suffered from catastrophic life changing injuries. Normally compensation is paid in a large lump sum and it is assumed that the injured party will invest that sum and receive a return. Today’s announcement says that it is expected that such persons would in fact be losing .25% and the rate sets out how much interest an insurer would be paying on the lump sum amount which is deducted from the total sum to be paid to the injured party.

The Lord Chancellor’s Office said that it would review the discount rate again within the next 5 years.

The reaction from lawyers acting for injured parties was quite different to the reaction of the Insurance Industry – The change was welcomed by a number of lawyers who pursue catastrophic injury claims on behalf of their clients.

If you require any further detail or advice, please contact John Reid in O’Rourke Reid
Dial: +353 1 240 1200

This document is for information purposes only and does not purport to represent legal advice.  
© O’Rourke Reid 2019