Bus and coach insurance specialist Gauntlet has urged operators to act quickly to cushion a ‘major financial blow’ when their insurance renewal comes around.
The firm said shockwaves are reverberating through the insurance sector since the Treasury announced the first change since 2001 in the ‘Discount Rate’ or ‘Ogden Rate’ – a calculation used in large personal injury claims settlements where the injured party is severely incapacitated and unable to enjoy their former quality of life.
Large settlements comprise two components – a lump sum paid by the insurer, lower than the total agreed compensation, and interest the claimant can earn by investing the lump sum. Together, these are supposed to deliver the agreed settlement sum, which typically runs into thousands of pounds.
Since 2001, the calculations have been based on the assumption that the injured party can access an interest rate of 2.5% for their lump sum investment. However, given the sustained period of low interest rates the economy has seen, the Chancellor has moved the Discount Rate to -0.75%, as from March 20, 2017.
This interest rate applies to both new and existing settlements, so insurers are having to use part of their profits to ensure claimants who have had a settlement in the past, as well as new claimants, can receive the settlement sum agreed.
Gauntlet Group Director, Ian McCarron, said: “Bus and coach operators need to pro-actively tackle this issue, by talking to us and allowing us to create a risk management strategy for them.
“Burying heads in the sand until the renewal comes around will be of no use. The message has to be to act swiftly and start to manage risk now.”