Is your limit of liability high enough?

You are probably sick and tired of us talking about the change to the discount rate by now, however there is one aspect we have yet to touch on – your current liability limit levels.

What is the discount rate?

As a reminder the discount rate reflects the level of investment return that a claimant can expect to achieve by investing their settlement amount.

This was previously set at +2.5%, meaning you could expect to get a positive return on your investment, thus the settlement figure was lower.

Now it has been reduced to -0.75%, meaning you would likely achieve a loss if you were to invest the money. This means that the initial settlement figure must be much higher!

Whilst there is no doubt that claimants should get a fair settlement following an injury, the decision to change the rate has had big implications in terms of cost and affordability of insurance.

The new rate will now apply to all settled claims regardless of the incident date.

Limits of Liability

So how does this affect your limits?

In simple terms, should a major incident occur your limit is going to be used a lot faster now than it was before.

Therefore serious consideration should be given to increasing your limit just in case the worst should happen.

Claims Examples

Our friends at Zurich Insurance have compiled the following real life claim examples to show the impact of the discount rate change, and why you should be considering increasing your limits.

Motor CrashClaim 1 – Motor Severe Head Injury, reserve from £13m to £28.5m


Cause of loss
7 year old child travelling as a rear seat passenger when insured’s van collided with the rear of the claimant’s car resulting in severe head injury to the child.

Large compound skull fracture resulting in severe cognitive impairment and said to have the mental age of a 3 year old for the remainder of their life. Walks using a frame, albeit
uncoordinated. Will require 24 hour life-long care.

PPO claims with a life expectancy predicted of 70.

Reserve increased by £15.5m primarily due to the required increase in the original lump sum (to £9m) to reflect the reduction in the discount rate.

FootClaim 2 – Employers Liability – Amputated foot, reserve increased from £2.3m to £3.5m


Cause of loss
Claimant was loading a press with 6 meter long aluminium logs which arrive in bundles. After cutting the banding, instead of rolling down the table, one log rolled back off the table and landed on claimant’s foot.

Initially crush fractures to toes of right foot and subsequent operations to amputate great toe, then mid foot and finally whole foot.

Fork Lift TruckClaim 3 – Employers Liability, reserve increased
from £550,000 to £765,000


Cause of loss
Impact from a fork lift truck.

Severe fracture to tibia and fibula right leg to warehouse operative.

Reserve increase d by £215 000 which is small compared to some of the example here but still increases the original claim by c40%.

BrainClaim 4 – Employers Liability, reserve from £5.3m to £10.6m


Cause of loss
Fall from height of 8m.

Severe brain injury, claimant remains in hospital following accident over 12 months ago and still unable to speak.

Reserve increased by £5.3m due to change in the discount rate, future cost of care making up a significant percentage of the increase.

Pedal bikeClaim 5 – Public Liability, reserve increased
from £6.8m to £10.7m


Cause of loss
Cyclist hit a pot hole causing him to fall.

Traumatic brain injury.

Reserve increased by £4m following discount rate change, future care costs increased from £3.8m to £6.8m.

Fall from WindowClaim 6 – Public Liability, reserve increased from £4.6m to £9.6m


Cause of loss
Claimant fell from a window from the first floor of a house.

Severe head injury and unable to cope with many day-to-day tasks and vulnerable.

Increased by £5m due to discount rate change.

Motor BikeClaim 7 – Motor, reserve increased from £3.4m to £5.2m


Cause of loss
Motorcyclist hit by car.

Severe head injury, reduced memory/concentration and significant problems with balance and mobility.

Increased by £1.8m due to the discount rate change, majority of increase down to future care costs which have risen from £1.4m to £2.9m.

For more information, or to discuss your requirements, please do not hesitate to contact Rowlands & Hames.

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