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March 19 marked the beginning of the first review of the controversial Ogden rate under the Damages Act 1996 as amended by the Civil Liability Act 2018, and insurers and trade bodies have been quick to sound off.
Among the first to react was Zurich UK chief executive Tulsi Naidu, who called the Ministry of Justice announcement “a welcome step” in the process for setting a revised personal injury discount rate.
“It will help achieve a fairer balance between the award of appropriate compensation and the impact on the cost of insurance and public finances,” stated Naidu.
“The government and insurers have worked constructively through the passage of the Civil Liability Act to ensure that a new rate delivers a fair outcome for claimants, motorists, and taxpayers and we will continue to support the review process to see this achieved.”
As per the legislation, Lord Chancellor David Gauke is required to conduct the review and determine whether the Ogden rate should be retained or adjusted within 140 days. That means we will have answers no later than August 05.
Also welcoming the development was the Forum of Insurance Lawyers (FOIL), whose vice president Anthony Baker expressed the group’s hope that the review results in a fair and just outcome for all parties – that is, without any over- or under-compensation.
“FOIL has provided evidence in respect of the setting of the discount rate to the Ministry of Justice and all parties agree that 100% compensation needs to be paid to severely injured claimants,” noted the Plexus Law partner. “However, the current discount rate of -0.75% is, in FOIL’s view, unduly harsh on the NHS (National Health Service), public purse, motorists generally, and insurers.”
The body also cited what it believes has to be considered during the rate review.
“FOIL considers that low risk claimant investors will still achieve capital growth on their compensation sums by instructing wealth managers and IFAs (independent financial advisers) to manage a wide spectrum of portfolio investments,” said Baker. “These investment strategies need to be taken into account by the Lord Chancellor and the government actuary when setting the discount rate.”
Insurance law firm BLM has provided insights as well, with director of policy and government affairs Alistair Kinley pointing to the high likelihood of the review delivering a higher rate than the -0.75% currently in place.
In addition, according to Kinley, BLM thinks the process of setting a discount rate is not susceptible to delays related to the UK’s departure from the European Union.
“If that is correct, then there will be a new rate in force in England & Wales in less than five months,” he asserted. “During this period it is very likely indeed that parties will be particularly careful about the basis on which they seek to resolve claims.”
The Association of British Insurers (ABI) also welcomed the announcement with open arms while offering assurances when it comes to ABI’s role in the endeavour.
Commenting, general insurance policy director James Dalton declared: “Insurers remain committed to paying 100% compensation and want to see a process for setting the discount rate that delivers a fair outcome for claimants, motorists, and taxpayers. The outcome of the review must deliver this, and we will continue to play our part to ensure that it does.”
The Association of Consumer Support Organisations (ACSO) concurs that the Ogden rate review outcome should be fair, but ACSO executive director Matthew Maxwell Scott has pushed it further by putting forward a plea on behalf of claimants.
“Insurers’ first duty should be to injured people, not their fiduciary duty to shareholders,” he stressed. “After all, we pay for compulsory motor insurance to protect ourselves in the event of serious injuries which we hope will never happen.
“Insurers have lobbied hard to change the discount rate to a level which better suits their balance sheets, and while we join them in welcoming the review, we hope that the priorities and concerns of injured people will be foremost in the minds of the review team as they set about their task.”
Maxwell Scott also pointed out that the consequences for those injured would be significant even with just a small change to the discount rate.
“For example, a seriously injured 15-year-old girl requiring lifetime care may need £250,000 per year to pay for it,” he explained. “Under the previous discount rate of 2.5% (which was in place until 2017), the capital value she would receive was £8.5 million. Under the current government-sanctioned rate of -0.75%, it would be £23.5 million.”
Brett Dixon of the Association of Personal Injury Lawyers (APIL) has similar views on the matter. “I hope the Lord Chancellor will make his decision based on the very real needs of people who suffer catastrophic, life-changing injuries through no fault of their own,” said the APIL president.
“It is also important to remember that compensation for very serious injuries can sometimes be paid by instalments (periodical payment orders or PPOs),” added Dixon. “The need to address barriers to that system is now urgent.
“The needs of some catastrophically injured people are best served by a lump sum payment, others by instalments and still others by a combination of the two. If the government is determined to make changes to the discount rate, it is important to make sure we have a new way of using PPOs at the same time.”
Also calling for fairness was Allianz UK general manager for commercial & personal Simon McGinn, who said it was “great to hear” that the Ogden rate review has formally commenced.
“Focus now must be on a fair outcome from the review for claimants, policyholders, and taxpayers,” commented the Allianz executive.
