Resetting the discount rate is a blow for UK insurers

The UK government has revised the rate used to calculate the compensation paid to victims of serious accidents, but the magnitude of the change has not lived up to the expectations of the insurance industry. .

The announcement will reduce the amount that insurers must shell out, but not as much as expected in the industry.

The so-called Ogden discount rate is used to badess how many accident victims should be paid as a lump sum to use for the rest of their lives. This is the return on investment that victims can expect when investing. The higher the Ogden rate (and therefore the expected return on investment), the less insurers must pay a lump sum.

The rate has been set at -0.75% since 2017, but last year the government legislated to change the rate calculation method.

The first calculation according to the new method was unveiled Monday morning by the Secretary of Justice, David Gauke. The rate will rise to -0.25 percent.

Analysts had forecast a rate ranging from 0 to 1%. A higher number would be better for insurance companies and worse for accident victims.

Since the rate is used to calculate very large payments, small changes can have a significant impact on insurers' costs.

Martin Milliner, Claims Claims Manager at LV, said: "Today's announcement, which replaces the absurd and irresponsible financial decision to reduce the Ogden discount rate to -0.75% , do not seem to go far enough. At this level, we believe the plaintiffs will remain overcompensated, undermining the common law principle of 100% compensation. "