On the 1st March
2017 the Lord Chancellor announced plans to change personal injury
compensation, for the first time since 2001. The announcement related to the
Ogden Report, will offer the public better compensation pay outs following an
accident or incident.
On the old
calculations someone aged 30, earning £25,000 after tax and taking into account
future care costs would have been awarded £2,791,000, but with the new
calculations they will be awarded £6,325,000.
The new ruling
will have a direct impact on insurance and re-insurance companies, brokers and
clients. The changes are not restricted to motor related products, they apply
to any liability based policy with the NHS also likely to be effected
as they are reportedly having to reserve an extra £1billion for medical
negligence claims.
How this all works in practice
When there has
been a claim and the injured party is unable to return to work, insurers have
to consider how they are going to compensate them, including loss of earnings
and the costs for providing future care. Once this figure has been agreed a
lump sum payment is made.
In the past
insurers have been able to apply a discount to the settlement figure as the
claimant will be able to invest the money they have been awarded. This discount
is where changes have been made – due to the economy and low interest rates,
these past profitable investments are no longer providing any return. Plus the
value of £1 in today’s money is not going to be the same in 20 years time.
When the Ogden
Report was completed they concluded that investments are no longer a viable way
to generate additional income and so they have reduced the amount insurers are
allowed to discount the lump sum settlements. The change will take effect from
20th March 2017.
What this means to insurers?
When the
announcement was made, insurers have basically had to review their pending
personal injury claims and adjust the money they have reserved. These new
amounts have had quite an impact on insurance companies balance sheets as the
new reserves have doubled overnight.
To read a more in-depth
review of the Ogden Report and how it is likely to effect insurers profits and
claim payments - please review the article produced by the Financial Times
https://www.ft.com/content/db863c94-e24d-11e6-9645-c9357a75844a