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A series of graphs showing increase in insurance claims cost

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:

Employers Liability - reserve from £5.3m to £10.6m

Cause of loss Fall from height of 8m.

Injury Severe brain injury, claimant remains in hospital following accident over 12 months ago and still unable to speak.

Comment Reserve increased by £5.3m due to change in the discount rate, future cost of care making up a significant percentage of the increase.

Public Liability - reserve increased from £6.8m to £10.7m

Cause of loss Cyclist hit a pot hole causing him to fall.

Injury Traumatic brain injury.

Comment Reserve increased by £4m following discount rate change, future care costs increased from £3.8m to £6.8m.

 Source of claims data: Zurich Insurance

The Trust Insurance Group recommend you ask your insurance broker to review your current indemnity limits. This change in discount rate is most relevant to:

• Employers liability
• Public liability
• Products liability

In summary, this could potentially result in claims exceeding your current limit of indemnity.

If you’d like more information about Excess Layers, contact us or call 01949 875 046