Insurers and claims managers indicate their preferred Ogden rate
The Ogden discount rate should be set at between 0% and 1%, according to a poll of claims managers and insurers conducted by law firm BLM.
The survey, conducted as part of a webinar hosted by the firm, found that 60% of respondents believe the Ogden rate should be set at between 0% and 1%. Almost a third – 31.6% believed the rate should fall between 1% and 2%.
There was little appetite for a negative rate or for one of more than 2%.
The webinar was attended by more than 70 industry representatives, BLM said.
The Ogden rate was cut to minus 0.75% in March from its previous level of 2.5%. The consensus was that the rate was too high and had to fall, but many were shocked that the cut was so deep.
The discount rate sets how much insurers can reduce personal injury claim payments based on the investment returns the injured claimant could make by investing the payments. The current negative rate means insurers are paying out on top of the sum agreed to settle claims instead of cutting the sum, which has meant a jump in claims costs.
Motor insurance rates have rocketed to compensate for the higher claims costs.
Reserving to cope with the change has already cost the UK insurance industry hundreds of millions of pounds, and insurers are expecting a second hit from rising excess-of-loss reinsurance rates.
Claimant lawyers are in favour of the rate remaining at the new minus 0.75% level.
The government is now reviewing the method used to set the rate, and there are signs that it will be raised.
BLM director of policy and government affairs Alistair Kinley said: “While the result of our survey may be unsurprising, given the largely defendant audience, it is really striking that around two thirds of them believe that a new, positive discount rate needs to be put in place urgently.
“While now have an indication of where our audience believes the rate will settle, what’ll be interesting to learn more about is whether the government is considering new benchmark investment assumptions and what effect those would have on the discount rate.”
He added: “We know that the discount rate is high on the government’s agenda, with Justice Minister Lord Keen confirming this month that ‘an announcement of the government’s conclusions will be made at the earliest possible opportunity.’ And we think it’s a very realistic prospect that those conclusions, when announced, will point to new legislation - most likely the Civil Liability Bill from the recent Queen’s Speech.”