There was good news for UK insurers on Monday as they will have to pay out less to people who are seriously injured in motor accidents, as the personal injury lump sum discount rate, known as the Odgen rate, will change from -0.25% to +0.5% from January.
Labour's new Lord Chancellor, Shabana Mahmood, has been reviewing the rate since she was appointed, as it is required to be reviewed at least every five years, having been changed to -0.25% from -0.75% in 2019.
A spokesperson for the Association of British Insurers (ABI) said the increase was welcome and that the move to a positive rate "reflects the improved investment market conditions since the rate was last set five years ago".
The Odgen rate is the amount of discount applied to compensation paid to victims of life-changing injuries, so an increase in the discount rate means insurers will have to pay less to people who are seriously injured in motor accidents.
Mahmood said she considered evidence from two rounds of evidence, consulted the statutory consultees, HM Treasury and an independent expert panel, as well as considering advice from officials.
She will confirm the new figure in parliament later today, with a full statement of reasons to be provided, with the rate to be effective as of 11 January 2025.
With a higher Ogden rate, claimants are assumed to earn more from their investments, so the lump sums insurers must pay out will decrease.
For insurers, this means they are required to pay less for personal injury claims, improving their financial position, potentially leading to higher profits or allowing them to lower premiums for certain policyholders.
Law firm Kennedys said it anticipated that claimants with large future loss claims may well be advised to opt increasingly for smaller retained lump sums and more heads of loss by way of periodical payments, due to lower lump sum awards under a higher discount rate.
"The increase in PIDR is fair in light of the current economic climate and the investment returns available," Kennedys said in a statement.
"The increase from -0.25% to +0.5% and corresponding reduction in a claimant’s damages on settlement will enable public funds to be redirected to frontline services, including patient care in NHS claims."
Jonathan Edwards, partner and head of insurance and risk at HCR Law, said that this was “very good news for insurers”.
** UPDATE - CORRECTION: The initial article had the new rate at -0.5% rather than +0.5%.