The Ogden Discount Rate. What Does It All Mean?
What is the Ogden discount rate?
The Ogden discount rate refers to personal injury rates – it makes it easier to calculate future losses in personal injury and fatal accident cases. When a court is looking at compensating an individual and awarding a fair and suitable amount they take into consideration the Ogden discount rate – the higher it is, the lower the initial lump sum given – the current discount rate is 2.5% and has been at the same level since 2001.
Why is the Ogden Discount Rate getting so much attention?
The Ministry of Justice undertook a review stating there is a duty to ensure personal injury claimants receive suitable and fair compensation – consultations in 2012 and 2013 revealed no results with the issue which is proving extremely controversial.
There are two reasons why the Ogden discount rate is getting so much attention.
- The rate has not been adjusted since 2001 and with lowering interest rates the money awarded for personal accidents will not gain much interest – the current rate is far too high and assumes a greater return than is possible, meaning people are in danger of running out of funds.
- The rate is having a huge impact in the insurance sector as potentially it means that the reserves for past claims not already settled may rise, future claims could also increase – Direct Line state that a decrease of 1% on the Ogden rate would take £190 million off its profits.
The Association of Personal Injury Lawyers (APIL) believes that the rate has been incorrect for a number of years and would like to see the rate dropped to -0.5%, few believe that this will be considered by the government. A more realistic figure would be to reduce the current rate by 1-1.5% which would still have a significant effect on insurance companies.
The Association of British Insurers have made legal challenges and also recently lost a High Court battle as well as being refused the chance to appeal on the Ogden rate. Any changes to the rate wicked have a huge impact on insurance companies – more so than the whiplash reforms and insurance premium tax rises.
What does the future hold?
We’ll be posting any updates as and when announcements are made – in the meantime, watch this space.
