Personal Injury Claims, Limits of Indemnity and Care Homes
In early 2017 we have seen a major change in how compensation awards for personal injury claims are calculated. The changes have had a major effect on Insurers’ underwriting results and as a consequence we are seeing changes in the risk appetite of Insurers and of course premium increases.
In addition the changes mean that Public Liability limits of indemnity or £5,000,000 or below may not be adequate to protect care homes in the event of an injury claim being made against them.
The changes and how they can impact your care business are briefly detailed below. Our exclusive InsurewithCare care home insurance policy can automatically include a Public & Products Liability limit of indemnity of £10,000,000, and further layers of cover in excess of £10,000,000 are available if required.
What is the Discount Rate?
When assessing lump sum awards for personal injury claimants, account is taken of the net rate of return (discount rate) the claimant might expect to receive from a reasonably prudent investment of lump sum compensation. Also known as the Ogden Discount Rate, a rate of 2.5% has been used since 2001, reflecting the gross redemption yields of Index-Linked Government Gilts.
What are the Changes?
However earlier this year, Lord Chancellor announced a reduction in the discount rate of 3.25 points to -0.75%. The new rate was applied retrospectively to all outstanding personal injury claims. It is therefore important to note that this will not only affect claims occurring from now on, but also any unsettled claims that have already occurred.
How will this affect Claims?
The reduction in the discount rate will particularly affect large personal injury claims settlements.
Let us consider a case example of a 21-year-old who suffers a serious brain injury meaning they cannot work again. Under the previous 2.5% discount rate, the total sum award inclusive of loss of earnings and cost of care would result in a lump sum award of £9,072,028. With the new discount rate of -0.75%, it is estimated that this would increase to £20,020,103. This is an increase of 121%.
These changes will affect trades in different ways. Those trades where personal injury claims are high will likely see a higher increase in premium than those where property claims are more common.
How will this affect Premiums?
As a direct result of these changes we are seeing increases in motor and liability rates. These rate increases can vary quite considerably depending on the class of insurance and the business activities of the policyholder. The rate increases start at roughly 2% but some businesses will see increases of 20% or higher. In addition to the increases Insurance Premium Tax has been increased to 12%.
We will of course work closely with you to try to minimise these rating increases through our negotiations with Insurers and by demonstrating to them the risk management and safety measures employed by you already, and those you would be willing to implement in your business to try to prevent claims.
Please ask us about ways to manage your risk and prevent these claims from happening.
Limits of Indemnity
The claim example above clearly demonstrates the need for businesses to review their Public Liability, Product Liability and Employers Liability limits of indemnity.
If you are at all unsure as to whether your current limits of indemnity provide sufficient protection for your business please call us on 01452 300888.