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The Ogden rate

On Monday 27th February it was announced by the Lord Chancellor that the Ogden discount rate will be reduced from 2.5% to -0.75% in England and Wales thus setting a new rate applicable under the Damages Act 1996.

So, what is the Ogden discount rate and how does this affect you?

The Ogden discount rate

The rate forms part of the consideration when making lump sum payments to a severely injured person. It is used to ensure injured claimants are receiving the necessary financial security to provide for their care and loss of earnings. The discount rate is used to calculate the amount of compensation they will receive and reflects the return they will earn when that money is invested.

Presently the rate stands at 2.5% however from the 20thMarch, it will reduce to -0.75%

The Effect Of The Change

The change in rate will significantly increase settlement payments made by insurers following personal injury compensation payments. This can be seen in the extremely simplified ** example below: –

Circumstances –30 year old man is severely injured in a car accident & unable to return to work – his injuries are so severe that he will also require nursing care for the rest of his life. Settlement by insurers is required to take into account future loss of earnings and also the costs of ongoing nursing costs, which are estimated at £75,000 per annum for the care needed.

  • Current Settlement figure (existing Ogden rate) – £2.791m
  • Revised Settlement (revised Ogden rate applied) – £6.325m


The change in the Ogden rate, therefore potentially increases the amount the insurer will need to pay, by 127% or £3.534m

** Please note that this is an illustrative example, used only to demonstrate the effect of the rate change.

What Now?

These changes will affect claims costs across all those lines of business which could be affected by claims for bodily injury, such as private and commercial motor, motor fleet, and liabilities.

It is therefore to be expected that Insurers will give immediate consideration to their pricing structures for those classes of business that will be affected, which is likely to lead to increased rates.
Tim Pearson, Head of Claims for BHIB, commented: –

‘Whilst there is a second consultation planned prior to Easter, this announcement is extremely disappointing for us as Brokers, as it will be for our Insurer partners and of course for customers.

The previous rate of 2.5% in England & Wales meant that we were already providing significantly greater compensation payments to those seriously injured, than anywhere else in Europe.

The further consultation could mean that this rate is only in place for a short time, however as an Industry we must ensure that this ruling is contested and that at the earliest opportunity, the rate is re-adjusted’.

To discuss the impact of this ruling, or any other aspects of insurance, you can contact BHIB Insurance Brokers on (0330) 024 06 06, email follow us @bhib