Businesses face a new under-insurance risk…

24/10/17 General

Recent changes to the Ogden Discount Rate will see personal injury claimants receiving larger lump sums. As a result, businesses need to review their current indemnity limits on Public Liability cover, or risk being under-insured.

The following example explains why. A Public Liability claim was made recently against an SME covered by an Employers/ Public Liability policy with a £10m limit. Using the revised Ogden Discount Rate, the original £8m reserve was increased to £15m, leaving the insured exposed to an additional £5m on top of their policy excess.

In the underwriters opinion, if the claim settled anywhere near the reserve, the insured would be unable to pay the extra £5m. They would have to sell assets to meet as much of the claim as possible, potentially pushing them into insolvency unless other finance could be arranged.

While claimants should get a fair settlement of claims following an injury, the rate change has significant implications in terms of cost and affordability of insurance. It applies to all claims settled on or after 20 March 2017 and will have an impact on the cost of future settled claims, which will be reflected in future casualty and motor premiums.

Robust risk management will certainly help to reduce the likelihood of catastrophic claims, but businesses should review their limits of indemnity to ensure they adequately cover the exposure of the Ogden Rate.

As an insurance broker, we cannot urge our clients strongly enough to look at their limits of indemnity and see if there is a shortfall. Many insurers are able to offer higher limits or, if needed, additional layers of cover can be purchased, to ensure full protection in the event of a claim.

The CBI has voiced its concern over companies being underinsured following the Discount Rate change.

If you are unsure about the effects of the new Ogden Discount Rate and how it may affect you, talk to us today so we can ascertain whether you need to increase indemnity limits on your liability cover. It is not too far-fetched to suggest that your business could potentially be at stake if you don’t.

Sources:

https://insider.zurich.co.uk
http://newsandviews.zurich.co.uk
BIBA ‘Damages Discount Rate Consultation’ letter http://www.insuranceage.co.uk