Yesterday’s announcement by the Lord Chancellor and Secretary of State that the Ogden discount rate will move from 2.5% to minus 0.75% has prompted many organisations to comment:
Keith Richards, Managing Director of Engagement at the CII
“We are concerned by the extent of the Discount Rate cut, its timing and the degree of unintended consequence. There is no escaping that this reduction will ultimately be borne by the premium-paying public which may discourage many from insuring against the risks we all face. It particularly comes at a time when both insurance and protection gap issues are being highlighted, and premiums, are being affected by other big regulatory developments such as Solvency II implementation, and rises in Insurance Premium Tax.
Insurers will undoubtedly work hard to soften the blow on customers through efficiencies but there is only so much they can be expected to do. If a correction in the Discount Rate really is necessary, we would have preferred a gradual soft landing rather than a cliff-edge plummet.”
Ashton West OBE, Chief Executive at MIB
“We are hugely concerned about a likely rise in uninsured driving, following the Ministry of Justice announcement today about the discount rate.
“The work to reduce the problem of uninsured driving in the last decade is bound to unravel and will have dramatic consequences for the safety of all road users.
“There is already a disproportionate number of young drivers on our roads without insurance. Today’s announcement will lead to more young people choosing to drive uninsured as they struggle to find affordable cover.”
Dave Matcham, chief executive of the International Underwriting Association
“There can be little doubt a reduction in the discount rate to -0.75% will have a major impact in driving up the cost of compensating personal injuries. Inevitably, premiums will be under significant pressure for businesses and consumers across the UK.
“The discount rate has not been reviewed for some time. Many IUA members have therefore acted prudently and have already planned for some reduction within their business models. The scale of the cut announced by the Lord Chancellor, however, is far beyond general industry expectations and clearly demonstrates a need for urgent reform to this process.
“The IUA and many other industry voices, including the Association of British Insurers, have urged sensible caution about the review and it is immensely disappointing that these have not been heeded by the Government."
Peter Walmsley, Partner, Clyde & Co
“While we recognise that the people affected by this decision are severely injured and great care must be exercised, the government’s decision will result in gross over-compensation based on the Ministry of Justice’s use of an unrealistic and outdated legal framework. Even in its attempt to create certainty, the government has failed. It’s going to make cases very difficult and will probably delay the compensation process.
“It’s important to note that there is no mandatory requirement for an injured party to behave in a risk averse manner. This means they will be compensated on that basis but could make their investment decisions on an entirely different basis.
“This decision still leaves us open to future developments. Having taken years to reach this stage, we now face another consultation on methodology and process, the fourth the industry has been through, which seems unbelievable.”
Stuart Crisp, Insurance Partner, KPMG UK
"Making sure people are adequately compensated when the unexpected happens is the reason insurers exist, so it's important that the Ogden rate should reflect appropriate returns and it's not clear that today's announcement does that. For insurers, this will be a very significant hit to profits when compliance and tech are already causing serious cost pressures. The rate hasn't changed in well over a decade and we're now at a time of considerable market uncertainty as the geopolitical environment remains turbulent. Many may be asking, why now?"