Ogden Discount Rate

white bmw
A small avatar of a white male with brown hair wearing a white shirt and blue tie.
By Josh Brian
Marketing Apprentice

From the 20th of March 2017 the “New Ogden Discount Rate” will come into effect which will see the Ogden Discount change from 2.5% to -0.75% this will likely impact the cost of all insurance premiums.

The Ogden Discount Rate is used to readjust Personal Injury (PI) claims in relation to the variations in the finance sector e.g. inflation, tax, interest etc. A PI claim should be enough to make sure the injured claimant is not financially affected by their injury. This means that the claim pay out should take into consideration any future or ongoing costs as a percentage of the final decided figure this could include any loss of earnings if they are unable to work again or care costs if the persons needs ongoing home care that.

At the moment the Ogden Discount Rate allows the claim that the insurance company pays out to be reduced, as it is calculated that the claimant would put the money into the bank and this would mean the money would gain interest and the claimant would receive more money at the end.

A simple example is a 30-year-old male who earns 25k a year is involved in a car accident and unable to work for the rest of his life as a result. The claim payout needs to cover his wage (loss of earnings) and his health care costs for the rest of his life. Previously the cost of the claim the insurer would need to pay would be about £2.8million based on 2.5% discount rate. Whereas now the pay out from the insurer would be about £6.3million. For an in depth analysis of this scenario please click here.

With the amount payout increasing so drastically insurers will need recover some of their losses which is likely via policy holders they insure. Connect Insurance will always strive to get you the best insurance premium, in these changing times to try and make sure that the impact is not as severe. We offer a range of insurance policies from Private Car to Taxi to Motor Tradeand many more and work alongside a wide panel of insurance companies for each product to make sure that you get the best deal.

Sources: Commercial Marketing Mail: The Odgen Discount Rate Illustration.

Leave a Reply