Committee uncertain about Ogden rate proposals
A Commons Justice Committee has warned that proposals put forward by the government in September in the way the Ogden rate is calculated could result in accident victims being under-compensated.
It says further evidence on the way claimants invest their lump sum is required.
The government announced in March that it would cut the rate from 2.5 per cent to -0.75 per cent. This prompted an outcry from insurers, who said it would inflate compensation payments and therefore premiums.
The government then put forward proposals in September to amend the way the Ogden rate was calculated. These proposals, welcomed by insurers, would see the rate set at between nought and one per cent.
However, after consultation the Committee has said it needs further evidence on claimant behaviour before it can approve the reforms.
‘We recommend that clear and unambiguous evidence is gathered about the way claimants invest their lump sum damages before legislation changes the basis on which the discount rate is calculated.’ The report added that the law should ‘tend towards over-compensation, or should at least ensure that there are adequate safeguards to prevent significant under-compensation of the most vulnerable claimants.’
ABI director general Huw Evans said, ‘We welcome this report which recognises the need for a system which balances the interests of claimants, customers and taxpayers. The government’s reform proposals achieve this by ensuring that the rate reflects claimant investment behaviour, a fact supported by evidence from financial experts supplied to the government. Further evidence would only become available if claimant advisers were willing to provide it – to date this has not been supplied. For good reason no other comparable country in the world has set a Rate this low, and it is widely recognised that reform is vital. It is time to press ahead in the interests of getting a system that is fair for everyone.’