The Ogden Effect

Insurance Companies are about to get really interested in how well you manage Health and Safety!

Changes in the way long term injury awards are calculated will have significant implications on Health and Safety and the availability of “reasonably priced” insurance. Insurance Companies will be increasingly interested in how well businesses manage their risk and this will play a greater part in their risk selection and pricing and even the availability of cover

The Ogden Tables are prepared by the Government Actuary and are used to set the level of an award that is required to meet future losses following a life changing injury and allows Insurance Companies to settle claims by making a lump sum payment today for future costs.

These tables factor in anticipated returns on investments and in their calculation apply what is known as a “discount rate”, which drives the final calculation. The recent review of these tables has changed the rate of return from +2.5% to -0.75%, the effect of which is significant.

This change has caused insurers to revisit their reserves for existing claims to ensure they have sufficient funding set aside to meet future liabilities; Aviva have announced that this change has increased its Combined Operating Ratio from 94.9% to 106.3%, QBE has announced that it is setting aside an additional $160m in reserves.

The effects of this will be that insurance that covers bodily injury, principally Motor and Employer’s Liability, will need to be re-priced to ensure the premiums generate adequate funds. Some insurers will chose not to underwrite these classes of business, so there will also be a contraction in the market “supply”. The net effect is that premiums will go up and Insurers will get more selective!

For businesses in more hazardous sectors or with historic accident history, this will be even more pronounced as they will represent greater risk exposure and this will get priced in.

The added challenge for business is that the insurance covers, by the nature of what they cover are Compulsory Insurances; you cannot operate a business without Employers Liability Insurance.

To avoid across the board increases, businesses will need to demonstrate and evidence how well they manage their risks. For many this will be a challenge, but for businesses using management systems like BCARM which can provide high levels of data around the businesses risk performance and compliance and which drive attitude, behaviours and culture, they will be able to use this data to lock in better risk pricing and hedge future developments in the insurance market!

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