UK insurers have persuaded the government to change the system that is used to work out compensation payments to accident victims in a move that could save billions of pounds.
Announced on Thursday, changes to the Ogden rate are likely to cut the amount of compensation payments that victims will receive, and possibly result in lower insurance premiums for drivers.
“We’re pleased,” Amanda Blanc, chief executive of AXA UK, told the Financial Times. “The process to get here has been painful, but the outcome is positive. We’ve got a solution that we think will compensate people fairly.”
The change in the Ogden rate will partially reverse the decision by the UK Government to cut the interest rate on lump sum compensation payouts from 2.5 per cent to minus 0.75 per cent, leading to a drop in insurers’ profits as the amount of compensation paid out rose.
The new ruling will mean that the Ogden rate will be set using what the government call ‘low risk’ investments rather than ‘very low risk’ investments, meaning the interest rate will rise to between zero and one per cent, according to the Financial Times.