Higher compensation rates for life-changing injuries ordered by Ministry of Justice
The Ministry of Justice recently decided to alter the rate used to calculate compensation for life-changing injuries. This rate change makes a good level of liability insurance more important than ever.
Alcumus SafeContractor Insurance Service powered by Towergate prepared this article to make sure you are aware of the adjustment and its implications.
The change explained
The rate in question, called the Ogden Discount Rate, was reduced from 2.5% to -0.75%, meaning insurers need to pay out higher compensations for life-changing injury claims.
For example, at the previous rate of 2.5%, a thirty-year-old individual disabled in an accident and predicted to earn £20,000 a year until retirement at sixty-five, and needing care determined at £100,000 a year, might receive a lump sum award of £3,414,350.
With the new discount rate of -0.75%, the same thirty-year-old individual is estimated to receive a lump sum award of £8,480,400 – a 148% increase.
The decision to review and subsequently change the discount rate follows a legal action taken by the Association of Personal Injury Lawyers in December 2016. The new rate was announced on 20th February this year and came into effect on 20th March 2017.
What is the Ogden Discount Rate?
The Ogden Discount Rate, which was fixed by the Lord Chancellor under section 1 of the Damages Act 1996, is a mathematical formula used to calculate future losses, and so an equivalent lump sum compensation, in personal injury and fatal accident cases. This year’s rate decrease is the first since 2001. The insurance sector expected the rate to be altered, however the overall drop of 2.75% is much more than the anticipated 1% - 1.5%.
Is the change going to affect me?
The long-lasting effect of the change is three-fold – liability claimants would be awarded higher compensation but insurance companies need to increase premiums across the board to accommodate these greater than expected pay-outs. This in turn, may detract some customers from purchasing relevant insurance and put them at a risk of being under insured. In other words – should they be found liable for a personal injury claim, their insurance may not cover all the compensation they would be ordered to pay out.
In danger of immediate underinsurance:
This is most likely to affect customers with higher liability risk exposure as they may face an immediate danger of having inadequate limits of public/products and/or employer’s liability insurance. A claim that would have previously cost £5m could now be double or triple this figure.
More likely to be impacted:
A company with a large fleet with a higher number of young drivers, and/or a high frequency and severity of claims
A scaffolder with a high liability exposure, an adverse employer’s liability claims history and poor risk management
Less likely to be impacted:
A company with a claim-free office package with some clerical public and employer’s liability
A property owner who is claim-free under their property owner’s liability and has a proactive approach to risk management
What to do next?
The personal injury calculation changes affect all insurers in the UK hence all customers are likely to see their premiums increase across the board. However, Alcumus Safe Contractor Insurance has prepared a special offer to help you manage your premium and respond to the change.
As a member of SafeContractor, you will be entitled to an exclusive 15% discount* and a £30 voucher** if you take out a business policy or email us your business insurance renewal date before 1st July 2017.
Don’t put your business at risk – adjust your cover
Alcumus SafeContractor accreditation requires a £2m public liability minimum, but you may want to consider adjusting your public liability cover limit to accommodate potential life changing injury claims that will be calculated at a higher rate.
Possible legal expenses and compensation fees you may be ordered to pay out if you are found liable are likely to be much higher than the false saving on getting cheaper insurance with a lower level of cover.
Speak with our dedicated insurance advisors today if you have any questions about the change or to discuss your policy requirements.
Contact your Alcumus SafeContractor Insurance Advisor on 0344 335 3810 or 0344 335 3811 for Van Insurance.
Alternatively, you can send us an email at SafeContractor.Insurance@Towergate.co.uk
Terms and conditions
*15% off: This offer is available to NEW customers who are Alcumus SafeContractor members, employ up to 15 people and purchase a Alcumus SafeContractor Insurance Service commercial policy excluding Motor / Van. This offer expires 1st July 2017. Discount will be honoured for new business placed up until 31/05/18 provided you tell us your renewal date before offer expiry date on 1st July 2017. Offer only available over the phone or via enquiry form. **£30 high street voucher: This offer is available to NEW customers who are Alcumus SafeContractor members, employ up to 15 people and purchase a Alcumus SafeContractor Insurance Service commercial policy excluding Motor / Van. One voucher per policy holder. A voucher code for Love2Shoprewards.co.uk will be issued 30-90 days after your policy inception date and you must make sure a valid email address is given on date of purchase. Not to be used in conjunction with any other offer. This offer is only available over the phone or via enquiry form and we will not award if you cancel your policy within the first month. This offer expires on 31st December 2017. Alcumus SafeContractor Insurance Service, Towergate Insurance and Towergate are trading names of Towergate Underwriting Group Limited, registered in England company number 4043759. Registered Address: Towergate House, Eclipse Park, Sittingbourne Road, Maidstone, Kent, ME14 3EN. VAT Registration Number: 447284724. Authorised and Regulated by the Financial Conduct Authority.
Post date: 08 Jun 2017
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