If you’re wondering why your insurance premium has gone up – it could have a lot to do with you and your claims record; it could be the fact that the Government (be it red or blue) keep increasing the rate of tax on insurance policies, taxing people prudent enough to protect themselves in the process; or… it could be the recent changes to the Ogden Tables.
When a real nasty claim occurs involving life changing injuries, you may be surprised to know that insurance companies don’t just give a random sum of money out, it is actually worked out very scientifically in order to put the person back (financially) in the same place had the injury not occurred. Did you know for example that 24/7/365 care including a night sleeper will cost in excess of £130,000 per annum – at current rates?
Prior to 1984 the amount of money awarded wasn’t consistent, but then the Ogden Tables were created and in 1995 it became law to use them to help calculate a fair and consistent amount. In 1998 (in the test case of Wells vs Wells) it was established that the rate of return that was used had to be linked to extremely safe forms of investments.
Interest and investment rates have dropped though, so earlier this year the Ogden Tables had to take this in to account. So for example, in a genuine case, instead of a payment for a critically injured man being awarded £4.3 Million it’s going to cost £11.7 Million, and insurance companies have had to factor this into their calculations.
This is why the changes to the Ogden Tables have cost UK insurance companies £5 Billion…
You might assume they can afford it. I hope they can, but very few insurers are now UK owned and based. Therefore, faced with losing money, why would any foreign owned insurer want to keep operating in the UK?
The share prices of some insurers plummeted when the changes to Ogden were announced and faced with these massive increases in existing and all future claim costs, insurance companies have only one option, to increase the premiums being charged.
The main areas which are affected are Motor and Liability insurances, because the Ogden claim tables only operate in respect of personal injury claims.
Other forms of insurance are being affected though, for example, Household Insurance includes an element of Personal Liability insurance, the cost of which is going to have to increase. As is Landlord Insurance as policies of this nature includes Property Owners Liability insurance.
Even Boat insurance – because the policy automatically includes Third Party cover – therefore the cost of this will increase too.
And, it gets better. As a direct result of these changes, what happens if your policy does NOT provide enough cover? Take the above example. If your policy only provides £10 Million of cover (a very common limit on Employers Liability policies for example) then there is a shortfall of £1.7 Million which you will be expected to pay…
So it would be prudent to consider increasing your limits of cover too. The worst claim I personally have experienced in a 35 year career, was a motor accident in Walsall where a motorcyclist went under a van leaving part of his head behind. He lived – and 20 years ago – he was awarded £7.5 Million. Were the claim still open, the amount payable would have been probably nearer circa £20 Million bankrupting the business concerned as they only held £10 Million of insurance protection.
If you want a chat about the impact of the Ogden changes please drop us a line or give us a call, but whatever you do please make sure you are properly insured in light of these changes.
For more detail you might be interested in looking at https://goo.gl/GY5bJm which is a webinar on Ogden & the effects of the changes, by Royal & Sun Alliance.