• 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

You may not yet have seen any news about the change to the personal injury discount rate. And even if you did, you may not have known what it was or thought it was relevant to you.

However, 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 following this change, you could be impacted.

What is the personal injury discount rate?

The personal injury discount rate (or Ogden discount rate) is a rating applied to the way that 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% since 2001. This means that any award given would be discounted by 2.5% to allow for a return on investment. 
 
Other factors such as life expectancy and future costs of on-going care are also taken into account when calculating a payment. 
 

What has 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% to -0.75%. 
 
This change comes into effect on 20 March 2017.
 
The best way to explain the impact of this is with an example.
 
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% discount rate.
 
Under the new -0.75% rate, the cost on the same example would be £8m.

How could it affect my car insurance?

This change will have a massive impact on the insurance industry. 
 
Insurers will have to increase capital reserves for past claims not yet paid, and the cost of future claims will go up considerably. 
 
In order to cover these costs, insurance companies will have to increase the price of your car insurance. 
 
This comes at a time when insurance premium tax (IPT) is 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 will be amending our prices based on this decision. We expect that the industry overall and other insurance companies will need to do the same. 
 
Whatever happens, we will be clear with our customers about the price of insurance with LV=.
 
From 1 April, when your insurance is due for renewal, your renewal letter will include the price you paid for your previous year's cover.
 
This will make 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.