How mo­tor and li­a­bil­ity in­sur­ance claim changes may af­fect you and your busi­ness

Nuneaton Telegraph - - FRONT PAGE -

The Min­istry of Jus­tice has made changes to the ‘Og­den dis­count rate,’ which pro­vides a frame­work for cal­cu­lat­ing com­pen­sa­tion pay-outs for those with se­ri­ous per­sonal in­juries, who are fac­ing long-term loss of earn­ings. The new rate has just come into ef­fect, as of 20th March 2017.

The dis­count rate is a per­cent­age re­duc­tion that in­sur­ers ap­ply to the lump-sum com­pen­sa­tion amount to al­low for the es­ti­mated re­turn on in­vest­ment on this sum. What this change es­sen­tially means is that those suf­fer­ing from se­ri­ous in­juries will re­ceive sig­nif­i­cantly higher com­pen­sa­tion pay­ments than be­fore. Hav­ing been set at 2.5% in 2001, the rate has moved to mi­nus 0.75%.

Whilst at first glance this may ap­pear a mod­est per­cent­age move­ment, the im­pact on claim pay­ments will be sig­nif­i­cant. Take, for ex­am­ple, a 20-year-old who is se­ri­ously in­jured at work and pur­sues a claim against his em­ployer. His claim would in­clude con­tin­ued loss of earn­ings of £25,000 per an­num un­til re­tire­ment age at 65. On the ba­sis of the 2.5% dis­count rate, this would equate to a loss of earn­ings claim of £639,750. How­ever, on the ba­sis of the new mi­nus 0.75% dis­count rate, the re­sult­ing loss of earn­ings claim is £1,200,375 – equat­ing to an ad­di­tional pay­ment of £560,625.

The change re­lates to any claim set­tle­ments post 20th March 2017, re­quir­ing in­sur­ers to make sig­nif­i­cant in­creases to their cur­rent claims re­serves. The As­so­ci­a­tion of Bri­tish In­sur­ers es­ti­mates the to­tal cost of this change to be as much as £7bn to in­sur­ers. Sep­a­rately, Down­ing Street has ac­knowl­edged that the pro­jected £1bn im­pact on the NHS for higher com­pen­sa­tion bills re­lat­ing to med­i­cal neg­li­gence claims is “broadly in the right ball park”.

This will ul­ti­mately im­pact pol­i­cy­hold­ers. An in­crease in claims re­serves for mo­tor and li­a­bil­ity poli­cies will in­evitably lead to in­creased pre­mi­ums. Whilst it’s too early to say for cer­tain what the scale of in­crease will be, es­ti­mates range from 5% to 20%.

There is still a lot of un­cer­tainty around the full im­pact of this rate change, with the govern­ment set to con­sult fur­ther.

So the best thing for busi­nesses to do is proac­tively re­view their risk man­age­ment strate­gies to en­sure they do all they can to min­imise claims fre­quency and sever­ity, both of which have a di­rect im­pact on in­sur­ance pre­mi­ums. Here are some ini­tial steps to con­sider:

Re­view your in­sur­ance cover, with the sup­port of a rep­utable bro­ker, who can best ad­vise as to how to mit­i­gate any po­ten­tial pre­mium in­creases with­out com­pro­mis­ing on im­por­tant cover.

Don’t be tempted to cut cor­ners to save money – re­duc­ing your pol­icy cover may lower costs, but could ex­pose your busi­ness to claims that ex­ceed your cover lim­its.

A pro­fes­sional bro­ker can dis­cuss ways to help you con­trol costs with­out ex­pos­ing your bal­ance sheet un­nec­es­sar­ily.

Shop around to try and get the best deal – use an in­de­pen­dent bro­ker with mul­ti­ple in­surer re­la­tion­ships, or brief a cou­ple of bro­kers to get you that cov­er­age of the mar­ket.

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