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 payouts 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 practise
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.
Just one well known major insurer has already estimated their profits will be down between £70,000,000 to £100,000,000.