The Ogden rate has been in this news throughout 2017 after a somewhat unexpected increase in March. But what is the Ogden rate and what impact might it have on your recruitment insurance premium?
What is the Ogden rate?
The Ogden rate (also known as the discount rate) is set by the Lord Chancellor and affects the amount of compensation a person receives in the event of a personal injury claim. The purpose of the discount rate is to ensure that claimants are not over- or under-compensated including consideration of factors such as interest rates and mortality.
Therefore, the basic principle of the discount rate is that any compensation paid will accrue interest over time that may lead to over-compensation and, for compensation relating to life-long care, mortality rates should also be taken into consideration. Using these factors, a rate is determined by which lump-sum compensation is adjusted before being paid.
How is the rate changing?
Simply put, the Ogden rate has changed from 2.5% to -0.75%. This was put in place 20th March 2017. The Telegraph demonstrated the changes in the following explanation:
For instance, under the old rate, an insurance company would need to pay out £975 to a claimant to cover a £1,000 loss. That’s because: £975 x .025=25, £1000 – £25= £975.
In other words, under the old system, the claimant was expected to earn 2.5pc interest a year on a lump sum payment of £975, which would yield £1,000.
Under the new -0.75pc rate, the insurance company will have to pay £1,007.50 in compensation because: £1,000 x 0.0075 = £7.5, £7.5 + £1,000 = £1,007.50.
So, what does this mean for your recruitment agency?
The ABI (Association of British Insurers) have estimated that up to 36 million individual and business motor insurance policies could be affected, but this change may also have an impact on premiums for commercial liability insurance.
No matter how your organisation is insured, or who with, it probably has at least Public Liability and Employers’ Liability insurance. Both insurances can provide compensation for personal injury claims (depending on the circumstances) and therefore may both be affected by the change in the Ogden rate. As claims become more expensive for these sections of cover, insurers may increase premiums to cover their losses.
What can you do about it?
Sadly, the Ogden rate is likely to have an impact on motor and commercial liability premiums across the country. If you are concerned that your premium may be about to rise at renewal, you might consider speaking to us about how you can improve your risk management and potentially reduce your premium. You may also consider moving to a specialist insurer that may be able to offer lower rates. You can read about our specialist recruitment agency insurance and request a quote on our website.