Government Change puts Organisations at Risk
A recent change by the Government to the ‘Ogden rate’ (the way in which liability injury claim payments are calculated) means all organisations need to urgently review their liability insurance limits. Many organisations will find this change renders their current limits inadequate.
By understanding the change, analysing the impact on your organisation and taking advice from us you can ensure this change does not leave you exposed should you face a serious liability injury claim.
A liability injury claim made against you
When an employee, volunteer or a member of the public is injured because of your negligence, they can bring a claim against you. This person is called a ‘claimant’. These claims are covered by your Employers and Public Liability insurances.
Claims for serious, life-altering injuries usually consist of:
- Compensation for pain and suffering
- Future loss of earnings
- Future cost of care (for serious injuries: 24-hour care for the rest of a claimant’s life)
- Other financial support (for example the cost of caring for claimant’s children)
- Legal and professional fees
Often a large lump sum is paid to the claimant. The most serious claims can go well into millions of pounds, especially for young claimants and those with high earning potential.
The Government recently amended the way in which lump sum amounts for serious liability injury claims are calculated. In simple terms, insurers were previously allowed to assume that any lump sum payment would grow by a rate (known as ‘Ogden Rate’) of 2.5% each year in interest gained from low-risk investments.
Following a review by the Government this rate had been reset to -0.75% because of recent poor investment returns. Insurers must now assume that the lump sum paid out will lose value each year, over the rest of the claimant’s life.
The rate change sounds small but it has a huge impact on the amount paid out in liability injury claims. The lump sum paid out to a claimant now has to be substantially higher in order to account for the depreciation that will occur to this sum over their lifetime.
The new rate applies to all claims settled after 20th March 2017, regardless of when the claim occurred. The following examples and real-life claim situations are provided by leading insurers Zurich & AXA.
A plasterer suffers a traumatic brain injury.
Previously insurers would have paid £2.24m. Insurers would now have to pay £6.15m.
A claimant suffers a spinal cord injury at work.
Previously insurers would have paid £7.6m. Insurers would now have to pay £19.3m.
Real-life claims (actual ongoing cases):
Child fell off swing at school resulting in serious and life-changing injuries
Previously insurers would have paid £7m. Insurers will now have to pay £15m.
Claimant fell from window of house resulting in severe head injury
Previously insurers would have paid £4.6m. Insurers will now have to pay £9.6m.
Claimant fell from height of 8m whilst working
Previously insurers would have paid £5.3m. Insurers will now have to pay £10.6m.
Claimant fell from bike because of a pothole and suffered a traumatic brain injury
Previously insurers would have paid £6.8m. Insurers will now have to pay £10.7m
What does this mean for your organisation?
The claims outlined above demonstrate that serious claims can come against any organisation – even if you perceive yourself to be operating ‘low risk’ activities. Almost regardless of your activities, a claim could come against your organisation for negligence which leads to an employee, volunteer or a member of the public suffering a serious injury.
A bad fall or accident can result in serious back, neck and head injuries which could now cost millions of pounds if a successful claim is made.
If a claim is made against you and your sum insured is inadequate: what would you do?
Previous ‘normal’ limits of £1M, £2M & £5M for Public Liability are clearly no longer adequate in many situations. The same applies to the current industry-standard limit of £10M for Employers Liability.
What should I do?
- Talk to us for advice on the factors you should consider.
- Review your current Public and Employers Liability limits.
- Act: increase your liability limits to appropriate levels. (We can obtain quotes from your insurer to increase your current limits as well as getting quotes for top up policies.)
The bottom line
The Government change impacts nearly every organisation. It is no exaggeration to say that failure to review this issue could put your organisation at risk of bankruptcy or closure in the event of a serious liability injury claim.
We advise that you set aside time to consider the information provided and discuss this with the relevant people within your organisation.
Each organisation is different, facing different risks and different risk exposures. Please contact us as soon as you are able, to discuss this matter and ensure your organisation is adequately protected.