Articles

The personal injury discount rate debate: what’s it all about?

And how will it impact you?

5 minutes

In 2017, the Secretary of State for Justice announced a change to the Personal Injury discount rate. But what does it mean for you? 

  • We explain the ins and outs of the personal injury discount rate
  • A change to the way courts work out lump sum compensation payments could increase the cost of your insurance

Find out what the changes mean for you

Not sure what the personal injury discount rate is all about? 

If you're a driver or a business, the changes to this discount rate could directly affect you and the cost of your insurance.
 
To help make sense of the information, we explain the personal injury discount rate, and how you could be impacted.




What's the personal injury discount rate?

The personal injury discount rate (or Ogden discount rate) is a rating applied to the way lump sum compensation is calculated for serious personal injury and fatal accident cases.
 
It's based on the premise that someone who receives a lump sum award following a serious injury would have the opportunity to invest that lump sum, and receive a return on that investment to provide them with an income to pay for their future care.
 
The rate has been at 2.5 per cent since 2001. This means any award given would be discounted by 2.5 per cent to allow for a return on investment. 
 
Other factors such as life expectancy and future costs of ongoing care are also taken into account when calculating a payment. 



 

What's changed?

On February 27 2017, Liz Truss, Secretary of State for Justice, announced findings of a review of the personal injury discount rate resulting in a change in the rate from 2.5 per cent to -0.75 per cent. 
 
This change came into effect on 20 March 2017.
 
Here's an example of how it works: 
 
Previously, the cost of providing care for a 25 year old man with a moderate brain injury for the rest of his life could have totalled £3.1m, based on life expectancy and applying the 2.5 per cent discount rate.
 
Under the new -0.75 per cent rate, the cost on the same example would be £8m.



How could it affect my car insurance?

This change had a massive impact on the insurance industry. 
 
Insurers had to increase capital reserves for past claims not yet paid, and the cost of future claims went up considerably. 
 
In order to cover these costs, insurance companies had to increase the price of your car insurance. 
 
This came at a time when insurance premium tax (IPT) was also going up. 
 
Huw Evans, Director General of the Association of British Insurers (ABI) said this was a 'crazy decision'.  He went on to say 'claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK'.




Whatever happens, we're upfront about the price of your insurance

We've amended our prices based on this decision. We expect the industry overall and other insurance companies will need to do the same. 
 
Whatever happens, we aim to be clear with our customers about the price of their LV= insurance.
 
From 1 April 2017, when your insurance is due for renewal, your renewal letter now includes the price you paid for your previous year's cover.
 
This makes it easier for you to compare the cost of insurance year on year, as well as check what level of cover you're getting for your money.
 
We're committed to making it clear and easy for our customers to compare and buy insurance products. 
 
If you've received a renewal letter from us and want to know more about your price, read our short guide which explains how we work out the cost of your car insurance.