Businesses that need motor or liability insurance to operate were affected by the Ministry of Justice when they made changes to the ‘Ogden discount rate’ – the framework for calculating compensation pay-outs for those with serious personal injuries who are facing long-term loss of earnings.

The discount rate is a percentage reduction that insurers apply to the lump-sum compensation amount to allow for the estimated return-on-investment on this sum.

Having been set at 2.5% in 2001 the rate moved to minus 0.75% in 2017*. Whilst at first glance this may appear a modest percentage movement; the impact on claim payments will be significant. What this change essentially means is that those suffering from serious injuries will receive significantly higher compensation payments than before.

As a result of the change in the rate, insurers were required to make substantial increases to their current claims reserves. The government acknowledged that the impact on the NHS for higher compensation bills relating to medical negligence claims.

So does this impact automotive businesses as policyholders? Put simply ‘Yes’, an increase in claims reserves for motor and liability policies is likely to lead to increased premiums.

If you have a combined motor trade policy covering material damage, employer and public liability, and road risk cover then your premium could be higher these days.

Businesses should be proactively reviewing their risk management strategies to ensure they do all they can to minimise claims frequency and severity – both of which can have a direct impact on insurance premiums.

The Risk Management Strategy

Review your insurance cover with the support of a reputable broker who can advise as to how to mitigate any potential premium increases without compromising on important cover.

Don’t be tempted to cut corners to save money – reducing your policy cover may lower costs but could expose your business to claims that exceed your cover limits. A professional broker can discuss ways to help you control costs without exposing your balance sheet unnecessarily.

There are ways to lower premiums without increasing the risk. For example by increasing your voluntary excess you are sharing the risk with the insurer which can bring costs down.

If you have an open driving policy you could save money by restricting it to named drivers only Some motor traders have policies in place that will cover employees for social, domestic and pleasure use; consider restricting this to just managers or those who really need it.

Shop around to try and get the best deal for your business – use an independent broker with multiple insurer relationships, or brief a couple of brokers to get you that coverage of the market.

To learn more about the Automotive practice, and how it could help you and your business, contact the Automotive team on 01582 542 330.