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With effect from 5th August 2019, the Ogden discount rate changed from -0.75% to -0.25%.

Why will this lead to higher premiums? To understand this, you will need a bit of back-history.
 

What is the Ogden discount rate and how does it work?

Road-accident-fire-engin-and-ambulanceNamed after Sir Michael Ogden QC, who was the chairman of the working party that established the Ogden tables.

They are used to adjust the compensation a claimant will receive after sustaining a life-changing insured injury.

There are a variety of tables that can be used to calculate the discount rate such as; how to calculate life expectancy, a multiplier for lifetime loss, the value of a single loss in the future and a multiplier for loss over a period.

For example, if you are involved in a life-changing accident that you are covered for under your insurance policy, you will be entitled to compensation to cover hospital treatment, care and loss of earnings.

This figure is then reduced by the discount rate to allow for the likely income achieved after investing the lump sum. Using the tables, a figure can be established to show how much a compensation lump sum is adjusted after calculating the expected return on investment. The higher the Ogden discount rate, the lower the payout from insurers.

The rate was set at 2.5% and had remained at that rate since 2001. Then in 2017 the rate was reviewed and changed to -0.75%. The large decrease was justified because of the lower yields achieved on investments during the period. This resulted in increases in insurance premiums for customers buying insurance but a better outcome for claimants who would not have to take risks with their invested compensation funds.
 

Why will this affect my insurance premiums?

Many insurance providers believe that even at the new level of -0.25%, claimants are being over-compensated and think a further review will be necessary, adding more turmoil to the market. The below 0% figure continues to assume a low-risk investment return.

Most insurance providers were expecting the new rate to be set between 0 and 1% and made assessments based on this figure. Though under the new rate, they will have to pay out less to claimants, they are warning that this could still lead to higher insurance premiums in future because keeping the rate below 0% maintains high claims settlements.
 

Winners and losers

It looks like we will all be paying more for our motor and liability insurance in future with premiums already rising since the announcement was made.

However, personal injury lawyers have welcomed the restraint in increasing the Ogden rates stating that claimants who have suffered life-changing injuries will be able to maintain a steady income from their lump sum from low-risk investments and avoid the risk of short term swings and losses from riskier investments.

CLA Risk Solutions, with access to a range of insurance providers, will be able to research the market to find you the most cost-effective insurance policy for your needs. As your local insurance broker based in Sutton Coldfield and Stafford, we cover the whole of the West Midlands and can offer a range of business, personal and liability insurance.

Call 0121 320 4600 to discuss your requirements.

Are you regularly experiencing late payment or non-payment by your customers?
Do you have a few clients who represent a large proportion of your business income?
Would you like to access new markets but are reluctant to expose your business to the risk of bad debt?

If you are constantly having cash flow problems due to bad debt and this is limiting the growth of your business and increasing stress, you may want to consider Trade Credit Insurance.

All types and sizes of business can benefit from Trade Credit Insurance and you will have support from one of the world’s leading providers of this type of insurance.

What is Trade Credit Insurance?
Woman-in-office-relaxed-because-she-has-trade-credit-insurance-coverTrade Credit Insurance provides protection against bad debt caused by insolvency, cash flow problems or political instability in overseas markets.

If one of your customers goes into administration and is declared bankrupt or insolvent or is having cash flow problems and the debt is outstanding for a protracted period, your insurance policy will protect you against loss of income. You are also covered in overseas markets where there is more risk from political instability.

In addition, as part of taking out Trade Credit Insurance, credit checks are carried out on your customers to establish their credit rating and provide a maximum limit your cover will support. This allows you the freedom to trade confidently up to this limit with new and existing clients.

Benefits of Trade Credit Insurance:
  • By insuring your debtor book, you will improve the cash flow of your business. The policy works alongside your credit control and enhances it.
  • You will be able to generate new business from markets you may have originally thought were too risky.
  • Using the latest financial data on companies, our provider will be able to monitor your customers and assess their credit risk so you will be the first to know if there are any problems emerging.
  • Our provider offers a reduced cost for debt recovery and legal expenses to help reduce the costs of getting your debt paid.
  • You may be able to negotiate better terms with your suppliers because they can be more confident that your business will not fail due to a bad debt.
  • It may be possible to obtain more funding on better terms from your bank because they will be assured that your business debt is secured by your insurance policy.
  • No more sleepless nights. Taking out a Trade Credit Insurance policy takes the worry out of bad debt.
  • We meet all new clients prior to the start of the policy so that you know exactly what is covered and how it works.
Gain control over your cash flow and peace of mind for the future of your business, call your local insurance broker in Sutton Coldfield and one of our team will be able to help on 0121 321 4600 or get a quote.
Business_Interruption_InsuranceYour commercial insurance policy will cover you for the replacement of buildings and contents if your business suffers a major disaster.

However, following an insured event such as a fire, flood, theft, vandalism or IT outage, business interruption insurance would cover the loss of income during the period of closure while you get up and running again.

A business interruption insurance policy will cover you for a range of costs:
  • Loss of rental income
  • Additional staff costs
  • Temporary relocation
  • Security for buildings
  • Loss of customer loyalty and subsequent reduction in sales
Owners often overlook business interruption insurance because they think they are covered by their buildings and contents insurance.

If you were unable to trade after a major incident and your customers had to look elsewhere while you got your business back on track, could you survive for what might be a period of up to 12 months? Even a few months would be enough to destroy some businesses and some previously loyal customers may never return when you open the doors again.

Business interruption insurance
As well as the cover outlined above, business interruption insurance can include damage to a neighbouring building that may affect the running of your business and result in a period of closure and loss of income.

It can also cover the loss of income if one of your suppliers suffers a major loss that affects the supply of products to your business.

Specific risks policies can also be written. One of the growing risks to business continuity these days is cybercrime.

If you have cyber risk insurance, you can include business interruption insurance along with your cyber insurance to support the business while the breach is identified and repaired.

Assessing your risks
Every business has different requirements and the level of risk and insurance cover required will vary. A manufacturing business with premises, machinery and stock will probably need longer to recover from a major incident than an office that could relocate within a few days. However, cyber risk may be greater for an office-based technology business.

This is where an insurance broker can offer their expert advice to find the most suitable cover for your business.

Call CLA (Risk Solutions) Ltd on 0121 321 4600 to discuss your business insurance.
Running an enterprise of any kind involves an element of risk.

Risk_Management_represented_by_car_console_dialTypical risks include:
  • Health and safety.
  • Environmental risks associated with business operations or external weather or economic conditions.
  • Financial risks.
  • Regulatory risks.
  • Security including buildings and cyber risk.
  • Fire, flood and other business interruption risks.
Your insurance policy can cover these risks.

The key is to identify the risks associated with your business, assess the likelihood of the risk occurring and estimate how much the incident will cost your business. Then decide if the risk can be limited and how much of the risk you need to cover for your business to survive an incident.

Risk management
Establishing a risk management plan and undertaking a review of the risks in all areas of your business will help you to identify and prioritise risks and put in place a process to mitigate them.

This will demonstrate that you have a system in place to minimise the impact of an insured loss and will provide your insurers with valuable information they can use when calculating your premium. It may also help to speed up your claim after an incident, for example: One of your employees is making a claim following an accident. You suspect that you were not negligent and the claim is fraudulent.

When investigating your claim, insurers will have to decide:
  • Whether the claim meets the policy terms and conditions.
  • Can a robust defence be provided by way of documentary evidence or systems?
  • Is it worth defending? Defence costs can sometimes outweigh damages awarded.
An effective risk management plan and proper procedures can often prevent an accident or fraudulent claim. This is always preferable and more cost effective than defending the claim.

Risk management support
Insurance brokers are in an ideal position to offer support and advice on best practice and claim statistics to help you to formulate a risk management plan, for example:

Key causes of accidents/claims (Insurance company data)
  • Slips and trips 27%.
  • Manual handling 20%.
  • Struck by/contact with object 17%.
By working with your insurance broker, you can discover how to mitigate some of your business risks to ensure you are minimising incidents and maintaining adequate insurance cover if you need to make a claim.

Call CLA (Risk Solutions) Ltd on 0121 321 4600 to discuss your risk management requirements.
Insuring commercial property can be complex.
Commercial buildings come in all shapes, sizes and material construction. They generally need specialised heating, lighting and ventilation systems and the flexibility to cater for a variety of businesses or tenants.

Commercial_Property_InsuranceInsurers will assess multiple factors when they are calculating premium costs. A commercial landlord or property owner will need to provide details such as:
  • Location and any risks such as flooding
  • Type of construction and materials
  • Fixtures and fittings
  • Security
  • Type of industry using the building
Underinsurance
One of the regular mistakes made when insuring commercial property is assessing the full rebuilding cost. When calculating the sum insured for building and contents, it can be easy to undervalue the full rebuilding and replacement costs. This will leave you with a shortfall if you need to claim for a total rebuild if the property is destroyed.

Often, commercial property insurers will work on a pro rata “condition of average clause”; for example, if you are claiming for a partial loss of 100k out of your insured value of buildings and contents of 200K and you are underinsured by 50% (the full rebuild value is 400K), you will only receive an amount minus the percentage you are underinsured (50% of 100K = 50K). This could have serious financial consequences when you come to make a claim.

Property owner’s liability
Commercial property owners will need property owner’s liability insurance to protect against claims from a third party due to an accident resulting in injury or damage to their property.
The amount of cover will be determined by the type of business and the risks involved.

Business interruption and loss of rent
Following the total loss of a commercial building through fire, flood or another event, it may take some time to rebuild or repair the property. During this time, you will be losing rental income and you may have to find alternative premises for your tenant.

The amount of insurance cover will depend on your type of property and how long rebuilding work is expected to take. Calculations will include time taken for clearance, planning permissions, rebuilding and replacement of fixtures and fittings. This will determine the indemnity period (12, 24 or 36 months).

Legal cover
This is usually offered as an add-on to your commercial property policy and covers your legal costs if you are involved in disputes for non-payment of rent, data protection or employment etc.

Insurance broker
An insurance broker will be able to help you assess your individual requirements and provide an accurate valuation to ensure your building is adequately covered.