Businesses must review the limits of liability on their Public and Employers Liability Insurances as a matter of urgency – here is why your current limits are no longer enough
Last year the government changed the Ogden table rate (set by Sir Michael not Hilda!!). At first glance this would seem to have little to do with the life of a showman, but actually this single decision is having massive implications on court awards, meaning your current limits of liability on your Public and Employers liability insurance policies are no longer enough.
There has been a lot of press coverage recently about the changes to the Ogden rate, which affects how courts calculate the final settlement emanating from serious personal injury claims.
What is the Ogden rate?
The Ogden rate forms part of the calculation for funding future losses in personal injury and fatal accident cases. When courts assess compensation awards and how much interest the money awarded will earn when invested, they take into account the Ogden or ‘discount’ rate. Until recently the Ogden rate would significantly REDUCE lump sum awards made by people claiming off Showman (and all other businesses in the UK).
Why the change
The Ogden rate was set in 2001 at a rate of 2.5%. This was to allow for the fact that at that time lump sums invested in relatively risk free instruments such as UK Government Gilts were running at around 2.5% higher than inflation. Since then interest rates have reduced significantly. Campaigners such as the Association of Personal Injury Lawyers (APIL) have argued that the rate needed adjusting as it assumed that claimants were able to achieve better returns on a lump sum settlement than was the case. They argued that claimants would eventually run out of money.
What will the change mean?
The Government has reduced the rate to minus 0.75% from the previous level of 2.5%. Remember the lower the rate the larger the court awards and a minus means the lump sum now gets loaded instead of discounted. This will massively increase the overall cost of claims and is already prompting premiums to rise on motor and casualty insurance. These increases coincide with an increase in Insurance Premium Tax which along with other factors is threatening a ‘hardening’ of the market as these corrections bite. The following illustrates the affect to a final claim calculation for a serious personal injury claim:
Serious Brain injury to a person of 21 years of age at date of settlement.
At 2.5% rate.
Claim would settle at £9,072,028 with a future loss element of £8,242,086.
At – 0.75% rate.
Claim would settle at £20,020,103 with a future loss element of £19,193,161.
This is an increase of 121%.
Please note personal injury claims in the UK have settled at a far higher amount than this example.
Points to consider
- In the above example, if the limit of indemnity was £10m then the Insurer would discharge their liability by paying the limit of indemnity of £10m into court leaving the Showman to find the other £10,020,103 from their own funds. If your insurance is not enough the courts do not reduce the award they just make the insured pay the difference.
- Most of the UK insurance market set their Employers Liability limit at £10m, this has not changed since the early 1990’s and as you can see from the above example this is no longer adequate. Limits for Public Liability maybe even lower than the Employers Liability limit and must be revised upwards.
- Liability insurance limits apply to each event, not each individual, so it is important to consider the aggregate cost of an accident. For Showmen one event could be the collapse of a ride causing a number of people to be injured.
- For Showmen there is a higher than average potential for injury to children or young people, the younger the injured party the greater the affect the Ogden table change has on the settlement.
- In the light of the above you need to contact your insurance broker immediately. Please do not wait for renewal as the potential exposure applies now. Showmen should ask for a minimum of £20m Public and Employers liability cover going forward, ideally this limit should be even higher.
- If you have problems with your current broker/insurer extending cover, which can often be the case particularly for offshore cheaper liability products, where the insurers do not have the capital to cope with large losses, then please contact Park Insurance on 0117 955 6835 and say you want cover for at least £20m Public and Employers liability insurance. Park have been a specialist broker for the Showmen for over twenty tears and only place insurance covers with UK regulated companies who have large capital and who have the resources to underwrite liability limits of £20m or higher.
For specialist advice contact parkinsurance.co.uk