The Lord Chancellor has asked for experts to contribute to a review of how the Ogden rate is set with a final decision predicted by May 2019 as the industry hopes it may settle around 1%.
The insurance sector and lawyers have welcomed the beginning of a review process into how the discount rate, also known as the Ogden rate, is determined.
Yesterday, (6 December), Lord Chancellor and Secretary of State for Justice, David Gauke, issued a call for evidence from experts about how the rate is set kicking off a process which is expected to complete in the second quarter of 2019.
A final decision is due 140 days from the Civil Liability Bill, which includes detail on the discount rate, gaining assent. The Bill, is due to be passed into law before Christmas which means that there should be an announcement in April/May time next year.
The Bill also dictates that the rate should be reviewed every five years.
James Dalton, director of general insurance policy at the ABI, said: “We’re pleased to see the Lord Chancellor progressing quickly to gather the evidence needed to inform a review of the discount rate.
“We currently have one of the most costly discounrt rates of any major economy and this drives up the cost of insurance and puts a big financial burden on the NHS. We look forward to continuing to engage constructively with the Ministry of Justice to ensure the right outcome for claimants, insurance customers and the taxpayer.”
Axa’s technical director David Williams also welcomed the stability the review and final decision would bring to the market next year when a rate is finally set.
“The fixed rate will bring a degree of certainty,” Williams explained.
“We can build this into pricing and would be able to anticipate claims. A crucial element of that is the discount rate.
“[Having certainty around this] is not just good for insurers it should also be good for premiums.”
Numerous insurers complained, descending upon Downing St, when the rate, which is used to calculate payments to injured people, was slashed to from 2.5% to -0.75% without notice in February 2017.
In March this year the government agreed to look into how the rate is decided as part of the Civil Liability Bill.
Williams said Axa had focused a lot on how it would respond to the review and commented: “The discount rate should show what people are doing with their lump sum payment.
“The last thing anyone wants is to run out of funding but it is ridiculous to calculate it in an over-cautious way and not reflecting what people are putting their funds into.”
Williams agreed that a fair figure for claimants and the industry would be between 0-1%. He pointed out that most current payments were being settled at around half a percent rather than the -0.75% figure.
He added: “1% is a reasonable figure, it still shows caution to me.”
Matthew Maxwell-Scott, a director of Access to Justice, also welcomed the start of the review procedure and said any final decision should “focus on the rights of victims”.
Maxwell-Scott stated that the decision should be based around how victims invest lump sum payments with an emphasis on the fact that many prefer to invest in low or no risk accounts.
He noted he did not have a number in mind but recalled that 1% has been suggested and added: “It has to be decided by the expert panel. The industry is expecting around 1%.”
Gauke commented: “Calculating what the personal injury discount rate should be is a demanding and technical exercise, but it is vitally important to many of the most vulnerable individuals in our society that the rate is set fairly and accurately.
“It is the duty of the Lord Chancellor to set the rate and, to do this, I need to have up to date evidence of the investments available to victims, the investments that they make and the other matters that I have to take into account in setting the rate.”
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