A huge shake-up to the way insurers pay out compensation to seriously injured claimants is threatening higher premiums and smaller payouts.

The UK government is reforming the ‘Ogden discount rate’, the system which looks at how much compensation a critically injured victim receives and how it is paid.

A victim’s future loss of earnings is one of the key factors in determining any payout received, normally a lump sum is invested and the claimant sees a rate of return over the remainder of their lives. The ‘Ogden discount rate’ takes into account these factors and has been adjusted from minus 0.75 per cent to minus 0.25 per cent, a change which means smaller payouts.

Though the changes is less than many in the insurance industry expected, Huw Evans, director general of the Association of British Insurers told The Daily Mail that it is not great news for anyone.

He said: “'This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money.

“A negative rate maintains the fiction that a claimant and their representatives will knowingly choose to invest their damages in a way that would guarantee losing them money.

“This will remain the lowest discount rate in the Western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital.”

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