The Lloyd’s Market Association (LMA) has written to the Justice Committee conveying its support of reforms set out in the personal injury discount rate in the UK, also known as the Ogden rate.
On 7 September, the Ministry of Justice (MoJ) announced that the draft reforms would result in a rate of between 0 percent and 1 percent. This compares to the initial reduction in the Ogden discount rate from 2.5 percent to -0.75 percent in February.
In its consultation response, the LMA stated that the existing rate-setting mechanism and the unrepresentative rate of -0.75 percent is leading to over-compensation and is driving up insurance premiums, increasing costs for individuals and businesses.
The changes will provide for a triannual review of the rate, assume compensation recipients are low risk rather than very low risk investors, and use an independent panel of experts to advise the Lord Chancellor on what the rate should be.
The Government’s stated objective of legislation is to ‘reflect actual claimant investment behaviour and ensure claimants are compensated in full neither more or less’.
Whilst the LMA has shown its support of the Justice Committee’s ‘Pre-legislative scrutiny: draft personal injury discount rate legislation inquiry,’ it has also recommended improvements to be made to the draft legislation.
The LMA’s recommended improvements include a provision for a specific announcement on day 1 of any 180 day review to provide clarity on when the process will conclude.
It also recommended there should be a specific timescale for the actual implementation of any new rate. This should take place as soon as possible after the rate review process is finalised and the new rate is announced. The suggestion is a maximum delay of 60 days.
David Powell, non-marine manager at the LMA said; “In May, we responded to the Ministry of Justice consultation by calling for a new process that would provide greater certainty and transparency, reducing the risk of unexpected and significant changes in the rate.
“We believe that the draft legislation meets the Government’s objectives and will deliver a fairer and more predictable discount rate, reducing costs for insurance customers.”