There has been a lot of recent news about the increase of the Ogden discount rate brought in by the government on the 27th February.

It has the insurance market in uproar, with the decision by Lizz Truss being called ‘crazy’. Many insurers have released just exactly how much the change of the Ogden discount rate will be affecting their profits.

However many customers have not heard of the change, or fully understand what it means for them.

The Ogden Discount Rate Explained:

When a person suffers from a personal injury and is unable to carry on working the Courts will award them a lump sum. This will be based on any future costs the person faces such as costs of care and living and so on.

Due to the money being able to be invested and make money in the long run, a discount is deducted off the total sum of the pay out. The idea was that they will get the full amount overall as a result of investing the money correctly.

The Ogden chart is what is used to calculate the percentage that was to be deducted based on life expectancy etc.  From 2001 the percentage was set to 2.5%, meaning a discount between 0% – 5% could be deducted.

However the percentage has recently been changed to -0.75%, meaning the pay out can now be discounted by -2% to 3%.

What it means for insurers:

This affects insurers as the pay outs they make will now be increased.

The difference of 3.25% may not seem like a big change but when the pay out amounts to millions it will make a big dent in an insurers pocket.

What it means for consumers:

Many consumers have not heard of the Ogden discount rate but it will soon affect them in a big way.

It has been predicted that because of the change there will now be £100 added onto every motor insurance premium.

Brokers are bracing themselves to explain to customers why premiums have gone up.

The industry reaction:

As soon as the news was announced, many industry giants released their reactions.

ABI’s director general Huw Evans branded the decision made by Liz Truss as ‘crazy’.

Direct Line predict a hit of between £215m and £230m to their profit before tax.

LV state the changes will push young and old drivers to stay off the road.

Many other insurers have reacted with the general take on the decision being negative.

If you have any questions or comments on the topic, please leave a comment below.