The New Discount Rate – Bad News All Round

It was announced on Monday 15 July by the Ministry of Justice that the Ogden Discount Rate will only marginally increase from the -0.75% level to -0.25% with effect from 5 August 2019.

This is a disappointing result because the government had previously indicated to the industry and the financial markets that the rate would be between 0% and 1%. Consequently, insurers have based their claims costs on this which has helped to keep premiums down for customers. The impact is not just directly to the insurance industry and its customers. The single biggest financial impact will be felt by the NHS which therefore impacts UK PLC and tax paying individuals in England and Wales. The NHS, which manages injury claims reserves of around £80bn, was valuing cases in the short term on a discount rate at +0.76%. Impact of the change for the insurance industry As the new rate is lower than anticipated, its likely insurers will have to increase the money set aside to pay future claims which in turn increases the pressure on premiums. This is an unwelcome outcome for customers as well as insurers and brokers. A new Scottish discount rate is currently being reviewed with a report expected in late September for an implementation soon after. Initial indications suggest that the approach in Scotland would lead to a rate that is more favourable to claimants than in England and Wales.