Could Ogden Rate Premium Increases Affect Your Festival?

The much-anticipated Oktoberfest event will not take place in Dublin this year (2019) due to an “unprecedented” increase in insurance premiums. Sadly, this is just the latest event to be cancelled due to Ireland’s compensation culture, which is leading to event organisers having a reduced appetite when it comes to hosting an event on the Emerald Isle.

Such issues relating to liability protection and claims lodged by festival-goers and event employees could also become a worry for the well-established British festival scene for slightly different reasons. The question here is that, if the price of public and liability cover sky rocketed, how would British festivals fare?

This scenario could be on the cards due to the introduction of a new ‘Ogden Rate’ – something insurers have been demanding, but which has not gone nearly far enough, in their eyes.

The ‘Ogden Rate’ forms part of the methodology used to calculate the amounts paid out by insurers in major personal accident-related compensation claims in which the victim has lifelong injuries or illnesses. After a major shift in the rate in late 2017/early 2018, which insurers felt too punitive, they had expected to see a move from -0.75% to 0% or 1% and so fixed their premiums with this in mind. Instead, the rate has only moved to -0.25%, leaving insurers out of pocket for the coming year, with significant losses predicted.

To explain, the Ogden rate is a discount rate that allows an insurer to pay the victim less than the total of the sum awarded at Court, on the basis that the lump sum, when invested, should earn enough interest to make up the difference. Insurers are now arguing that claimants are being over-compensated at the new rate but have no option but to make payments on the basis of the -0.25% Ogden Rate now in place.

The result is that some insurers are already sending out warnings to policyholders asking them to review their policy limits, as a typical £5m limit may not be enough financial protection to pay claims that are lodged. If policyholders do have to increase a limit, they would also need to pay more premium.

Additionally, any policy with a large element of liability cover within it, including public and employee liability, is likely to attract big premium increases at renewal.

This could become quite a predicament for festival organisers. Liability cover has already become harder to find in recent years, with some insurers having pulled out of the market. If premiums increase significantly, the very slight profit made by many festivals could be wiped out. Typically, once bills for power, ticketing, waste collection, sanitation, security, policing and artists have been paid, there is surprisingly little left in the pot.

If insurers go down a different route, it could be policy restrictions that cause a headache, just as Irish festival organisers have found. There, festival elements such as fire displays, fireworks and water-based activities are increasingly becoming components of the event that cannot be insured or insured only at a punitive price.

Best advice for British festivals is to start looking for insurance cover early. Using a broker can help to sound out the market and the best policies available, to suit individual festivals’ needs, several months ahead of renewal. Do not leave it until the last minute to look for either of the two key covers required – public liability and employer liability insurance – or duck out of buying this cover, as hazards are numerous on a festival site.

If you need to start having such a conversation, please get in touch.