Why you should be considering excess layers
On the 27th February 2017, the Lord Chancellor announced that the discount rate has been cut, changing it from +2.5% to -0.75%. This is a huge shake up, and is very likely to have an impact on your business.
The discount rate replicates the level of investment return that a claimant will expect to gain by investing their reward.
The best way to explain this is by way of an example . . .
If someone claims for a personal injury and you are liable, the claimant should receive a fair settlement of claims through your employers or public liability insurance. Prior to this recent ruling, the settlement amount assumed that the figure would be invested and would earn money at 2.5%. However, what the Lord Chancellor is now saying is that this lump sum will not earn you money at all, in fact its value may actually go down.
Therefore the settlement amount, i.e. the value of the award, has gone up. Your current insurance policy may not pay out as much as the Lord Chancellor is now demanding it should and your company will be liable for the shortfall…but you can buy an insurance policy to protect yourself.
Below are some examples of claims that demonstrate the change in discount rate and how it will impact the value of claim, and the gap between what the insurance policy will pay out and the amount the company will have to find themselves: