- Ogden rate changes mean insurers pay less for personal injury cases
Car crash victims could have millions of pounds deducted from their compensation payments from 2025 after government changes.
Compensation for life-changing injuries is calculated using a figure called the personal injury discount rate or Ogden rate.
The Government has announced that this rate will increase from -0.25 percent to 0.5 percent from January 11, 2025.
The Ogden rate is used by the courts to decide how much insurer compensation personal injury claimants should receive as a lump sum in England and Wales.
If the Ogden rate falls, payment amounts rise, and vice versa, so insurers soon face much lower bills for compensation claims.
Driving reason: Most people affected by the changes will have been injured in traffic accidents
For claimants, the changes could save millions of pounds on their compensation bills.
For example, at Ogden’s current rate, a young person who is disabled and needs lifelong care after a serious car accident might need £200,000 a year for 60 years, taking into account their loss of income.
At Ogden’s current rate, this person would receive a lump sum of £12.9 million, according to the Personal Injury Lawyers Association.
But when the rate changes to 0.5 per cent, this payment falls by £2.58 million, to £10.37 million.
The way lump sum compensation works is that the recipient is expected to invest the money and use those returns to help fund their care.
The Ogden rate changes every five years to take into account expected returns on investments over time.
The idea is to ensure that as many accident victims as possible receive the fair level of compensation, and that as few victims as possible are underpaid or overpaid.
However, having a single rate for each applicant is risky as it means some get less or more money than they need, especially given uncertain investment returns and inflation.
Lord Chancellor Shabana Mahmood, who sets the Ogden rate, said: “It is very important to recognize that the personal injury discount rate will always be a relatively blunt instrument, as no choice of rate can guarantee that all claimants receive exactly their full compensation.
“In setting this rate, it is inevitable that in individual cases there will be some degree of over- or under-compensation of claimants.”
The chance of getting full compensation, or more, will be 55 percent starting Jan. 11, 2025, Mahmood said. The probability of receiving grossly undercompensation was 25 percent, based on the three sample plaintiffs used for the calculations.
This increased possibility of overcompensation could put upward pressure on car insurance premiums, according to the Association of British Insurers (ABI).
An ABI spokesperson said: ‘We and our members firmly believe in full and fair compensation for claimants.
‘However, the Lord Chancellor’s approach involves great caution in calculation, which could lead to overcompensation. This could have an adverse impact on all premium-paying customers, particularly young drivers, for whom costs are often higher, and on the taxpayer.’
Car insurance premiums are slowly falling, but the average driver still pays £622 a year for cover.
Matthew Maxwell Scott, chief executive of the Association of Consumer Support Organisations, said: “The Lord Chancellor has made the sensible mistake of being cautious and, in doing so, making it less likely that the 100 per cent compensation principle will be broken.” .
“By resisting the siren call for a much higher rate, you have done the right thing by seriously injured people while ensuring costs for compensators are kept under control.”
Pedestrians and road users are most affected by Ogden’s changes, as the majority of personal injury claims involve a vehicle.
Traffic accidents account for about half of all personal injury claims, with public accidents accounting for 21 percent of claims and workplace accidents about 16 percent.