Your liability insurance – changes you need to know

These claims are picked up by your liability insurance, and recently there was a change in the law which potentially has widespread implications for anyone either purchasing or providing liability insurance.

The Ogden Tables – A change in the law

The compensation payable to an injured party is calculated by the Courts who decide on a suitable annual figure based on the needs of the individual. Discounts set out in The Ogden Tables enable a capital sum to be awarded, this sum to be invested to yield income for the rest of that person’s life. Over the lifetime of the claimant, it is expected that the capital sum will gradually be reduced, and at the end of the period, it is reduced to zero. A combination of the income and the erosion of the capital provide the annual compensation.

The Ogden Tables calculations are based on several different factors including life expectancy and investment yields.  The discount rate is set by The Lord Chancellor.

For the last eight years the discount rate has been 2.5% per annum, compound. However, for all claims settled after 20th March 2017, this discount will be replaced by a loading of 0.75%. This reflects our current low interest rate environment, and represents a negative yield over the life of the investment. It results in a substantial increase in the cost of settling such claims, especially where the claimant is young and severely injured.

A practical example

An illustration provided by Allianz Insurance plc takes a 30 year old male earning £25,000 who, following a life-changing accident, is unable to work and requires £75,000 a year to cover nursing. Including loss of earnings, this equates to a combined compensation cost to be funded of £100,000 a year for his working life, dropping to £75,000 thereafter. A combination of actuarial tables and a discount rate of 2.5% means that, before March 2017, the claim would have been settled for a capital sum of £2,791,000.

From March onwards, through removing the discount and instead applying the new multiplier of 0.75%, this payment, to cover his anticipated life, increases to £6,325,000.

How does this affect you?

Whilst the industry norm is to provide a £10 million limit of indemnity for Employer’s Liability, many policies have had a Public Liability limit of £5 million. This may now be inadequate and, in response, the underwriters of our main farm schemes have increased the standard limit of indemnity under the public liability section to £10 million. You will see this on your next renewal.

Higher limits are available by request.