Ogden Discount

Ogden Discount rate continues to create underinsurance on business liability insurance

In 2017 the government announced a change to the Ogden Discount rate (the rate that insurers have to use to calculate lump sum awards on injury claims) which has affected motor and liability insurance policies to varying degrees.  

At present the standard limit under Employers Liability insurance is £10,000,000 (restricted in many cases for terrorism and in some in other areas such as offshore) and many Public Liability policies are purchased with limits from £1,000,000 up to £5,000,000, more where chosen by businesses in individual circumstances. On the 15 July 2019 the rate was again changed as a result of the deliberations of a committee set up under the Civil Liability Act and, whilst it reduced the rate from -0.75% to 0.25%, the effect on liability exposures has changed very little.

What is the effect of the changes to the rate from 2019

The table below illustrates how compensation payments would have been calculated prior to the change in 2017, at the change in 2017 and then at the new rate of -0.25% (decided by the newly established committee) for a 36 male paraplegic unable to return to work.

Ogden Discount Rate

Prior to 2017

+2.5%

New 2017 rate

-0.75%

New 2019 rate

-0.25%

 Pain, Suffering & Loss of Amenity

£200,000

£200,000

£200,000

 Loss of Earnings

£782,000

£1,282,400

£1,180,000

 Care Package

£5,506,000

£12,050,000

£10,468,000

 Rehabilitation

£137,650

£301,250

£261,700

 Aids & Appliances

£412,950

£903,750

£785,100

 Legal Costs

£400,000

£400,000

£400,000

 Total compensation

£7,288,600

£14,987,400

£13,144,800

The information in this table are provided courtesy of Allianz Insurance plc

As you can see your potential liability exposure could still be double that in 2017 before any changes were made but standard policies for Employers Liability are unchanged. The above table shows you might need to consider an increase in your liability limits.

Whilst these sorts of claims are thankfully rare, these figures show how the liability cover within your business policy might not provide the protection you were expecting, despite the new change in the Ogden rate if a tragic event occurred involving your business or premises. Your business would be responsible for the difference between your purchased limit and any award made in court, together with a proportion of the court costs incurred in defending the case according to the level of under insurance.

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