The Personal Injury Discount Rate, set by the Lord Chancellor, was changed in March 2017. The Rate is used in the calculation of catastrophic personal injury claims and the consequence of the change in discount rate has resulted in significant increases in insurers’ claims reserves on liability policies for catastrophic personal injury settlements. Before, when the rate was at 2.5%, personal injury claims for a single person exceeding £10m, whilst not impossible, were extremely rare. In the new Discount Rate environment, £10m+ claims are far more common.
The implication for your business is that the current limits of indemnity for Public (PL), Products and Employers’ Liability (EL) insurance may be insufficient in the event of a catastrophic personal injury claim.
The British Insurance Brokers’ Association (BIBA – our trade association) reported recently on a personal injury claim for an SME business whereby a claim reserve for a personal injury on a Public Liability policy was increased from £8million to £15million, due to the change in the Discount Rate. The SME purchased a limit of £10million and the likely consequences will be the bankruptcy of the SME who is left to fund the balance over and above the limit of indemnity.
BIBA also provided some other examples:
PL claim: Child severely injured by vehicle on construction site, contractor responsible for traffic management found to be negligent. Claim reserved at £9million originally, following change in discount rate reserve now increased to £20million.
PL claim: Property owners’ policy – tenant fell down external stairs of building suffering severe injury. Claim reserved at £4.5 million originally, following change in discount rate reserve now increased to £6.5million.
EL claim: Claimant aged 19, accident causing tetraplegia. Reserve originally £9million, increased to £20.1million following discount rate change. EL limit of indemnity £10million.
EL claim: Claimant suffered spinal cord injuries leading to complete paraplegia following an accident at work. Reserve originally £15million, increased to £27.5million following discount rate change. EL limit of indemnity £10million.
Please review your limits of indemnity. Employers’ liability insurance typically has a standard limit of £10,000,000 and many and Public and Products Liability insurances have limits up to £5,000,000, and these limits may be insufficient in the event of a serious claim.
In considering limits of indemnity, we would also urge you to consider:
- Property damage and Product Liability claims may also result in significant losses.
- The adequacy of limits of indemnity for losses occurring today that may manifest themselves in the future – will the limit of indemnity in place currently be sufficient for claims that may arise in the future. Asbestosis and Mesothelioma claims are being pursued today from exposures many years ago, against EL policies with limits of indemnity arranged at the time as low as £100,000.
Please let us know if you would like us to arrange quotations for higher indemnity limits.