By Emma Hughes, New Business Broker
In February 2017 the Lord Chancellor amended the Ogden Discount Rate from 2.5% to -0.75%. This change has brought in to question whether businesses are adequately covered in the event of a catastrophic and complex injury claims.
The Ogden Discount Rate is used by UK Courts when calculating compensation in personal injury claims, the intention is to put the claimant in the same financial position had they not been injured. The Discount Rate reflects the additional earnings the claimant would make from low-risk investments and deducts this from the overall settlement. Since the economic crash in 2008 investment returns have tumbled, leading to the Lord Chancellor changing the rate of discount from 2.5% to -0.75%. Although a change of 3.25% may not seem too significant, in the case of catastrophic claims this can lead to substantial settlement costs.
For example, a Male aged 21 years old with a life expectancy of 87 years suffers a serious head injury resulting in needing 24 hour care. Under the previous 2.5% Ogden Discount Rate he would expect to receive £15.1 million in compensation. However, with the reduced Ogden Discount Rate of -0.75% this skyrockets to £29.3 million.
As you can see from this example, the rate change leaves all businesses vulnerable to underinsurance, not just industries partaking in high hazard activities. It is therefore important that you put measures in place to protect the balance sheet of your business. The standard limit of indemnity for Employers Liability given in the UK is £10,000,000. In the event of a serious injury, as per the above example, the standard indemnity for Employers Liability would leave a £19.3 million shortfall in cover. In this instance the Courts will look to the business assets to compensate the claimant. If your business is a Partnership, Limited Liability Partnership or Sole Trader then they can pursue your own personal assets.
The best and most cost effective way to protect your business is by increasing the limits of your Liability insurances. Your broker should be able to provide you with indications for increasing your limits, the additional premium often being minimally priced in comparison to the underlying policy.
Erimus Insurance Brokers is a trading name of Teesside Insurance Consultants Ltd. Registered in England No. 2043783.
Authorised and regulated by the Financial Conduct Authority No. 307660.
Directors: P.J. Davison, S.D.E. Hughes, I. Miller ACII, S.S. Pinnell. Non Executive Director: G. Lumby MBE, FCIBS.
Company Secretary: C. L. Nolan.