The Discount Rate – How will it affect you?

As of 20th March 2017 the calculation used to determine the lump sum compensation to claimants who have suffered life changing injuries will change from 2.5% to -0.75%.

The Discount Rate also known as the Ogden Rate has not changed since 2001 and the announcement at the end of February created shockwaves throughout the insurance industry. Under the old rate on a £1,000 loss an insurer would pay out £975 as the claimant would be expected to earn 2.5% per year on the payment. However, with the new calculation insurers would have to pay £1,007.50 in compensation.

These compensation payments will be linked to personal injury claims affecting motor and liability insurers with many insurers having to make unscheduled announcements to the Stock Exchange that profits will be dramatically affected.

Huw Evans, Director of the Association of British Insurers has said :-

“Cutting the discount rate to -0.75% from 2.5% is a crazy decision by Liz Truss. Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK. We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.”


Calculations made by industry experts are that motor insurance policies could face an average £75.00 increase per year with both younger and older drivers and business policies being the most affected. Whatever the outcome it is likely insurers will pass these increased expenses onto their clients and there will be price hikes on policies.

A further increase in June 2017 of insurance premium tax to 12% from 10% will force additional charges on insurance policies. 

Using an insurance broker allows for your premiums to be checked and compared to a panel of insurers each year. Price increases are often eased with clients who continue to use a broker to manage their policies rather than arrange the policy themselves.  



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