The latest Ogden Rate review has now been completed, and the results have not impressed the Insurance markets, with premium increases becoming immediately necessary across all classes of insurance business (specifically where your liability towards others is an element of the cover provided).
The Ogden Rate – also known as the Discount Rate – is used to calculate compensation awards based on loss of projected earnings, and ongoing healthcare costs, in serious personal injury cases. It was last reviewed in 2017, when the rate changed from +2.5% to -0.75%, due (allegedly) to reduced investment returns that could be gained from Government Bonds.
The Insurance market, unhappy with this dramatic reduction, lobbied Government for a more detailed review of both the Ogden Rate and the rationale behind the methodology of future rate calculations, as they argued that the size of, and reasoning behind, the 2017 rate reduction could lead to an over-compensation culture, substantially increased insurance premiums and an increased financial burden on our NHS.
Whilst Insurers awaited the result of this subsequent review, they applied modest rating adjustments during the 2017/18 period, to account for an anticipated new rate of between 0% and 1%.
However, this latest Ogden Rate review has resulted in a Discount Rate figure of just -0.25%; better than before, but still well below the expectation of the Insurance Industry as a whole, and more than the budgeted 0.5% upon which some underwriters had been basing their 2018/19 claim settlement payments and 2019/20 rating models.
As this latest review has fallen short of industry expectations (and financial projections), Insurers have been forced to take immediate action by applying further premium increases across all classes of insurance (Motor, Home, Property, Business etc – basically every class of insurance product that contains an element of Liability cover) with effect from 05 August 2019 (when the rate change came into effect).
With increased compensation awards also comes an urgent need for all policyholders to review their Limits of Indemnity/Liability (current projections are that compensation awards for serious injury claims will almost double, thus many fear that business policyholders will no longer have sufficient levels of liability cover to protect themselves should the worst occur).
With this in mind, I would strongly suggest reviewing your Public, Property Owners, and Employers Liability Limits, either via your existing policy providers or through the purchase of Excess of Loss policies.
There is no precise method to accurately calculate the “correct level of cover” to suit all businesses, and only you can identify the risks your business may face, but there are some points of concern you can consider when deciding upon the limit most suitable to you/your business:
1. Firstly, consider an immediate increase to no less than £5 million for Public Liability while you try to establish whether a higher limit should be implemented (or maybe even go straight to £10 million, as some Local Authorities, Manufacturers and Construction firms already have);
(this next one is a little cheeky, but it may be worth a call or two)
2. If you are a member of a networking group, try to speak with a few business leaders, in your field of specialization, to see if they have any examples of Third Party injury claims they may have experienced and are willing to discuss with you in confidence;
3. Also, consider the type of work you and your employees perform (do they use heat, chemicals, machinery, vehicles; do they work at height, or depth?) that could increase the risk of injury to others;
There are so many factors that will be beyond your control, so much information that you won’t have, and so many worse-case-scenarios that have to be considered (and taken on board, or rejected out of hand), before you can make anything close to an informed decision. What’s worse is there’s no simple answer that I or any other broker can give you. You will know your business and the risks it could face, so only you can determine if your current limit is genuinely suitable, or if a higher limit should be considered. But I would stress that the immediate concern should be to increase your Public Liability cover to no less than £5 million as an immediate stop-gap.
For more information on the types of Liability insurance we can arrange, please click here => Liability Insurance, or call us to discuss your requirements/concerns.