The industry has been taken by surprise by the decision to set the Ogden rate at minus 0.25%.
Simon Ranger, Head of Insurance, KPMG UK: “The industry has been taken by surprise by the decision to set the Ogden rate at minus 0.25%. Most insurance firms had incorporated an expected rate of 0 to 0.5% into their financial reporting, capital calculations and premiums. So whilst insurers will certainly feel the impact of this rate change, consumers will be hit too as insurers factor the change into future premiums.
“This is the third time in just over two years that the government has shocked insurers with an unexpected rate change or change to the process of calculating the discount rate. Global markets judge countries by their stability and predictability. During a time of so much economic and geopolitical uncertainty, having better predictability over other aspects of an insurer’s balance sheet, such as bodily injury claim costs, would instil more confidence and allow insurers to make sensible forecasts and in turn, more predictable premiums for customers.
“UK insurers, now more than ever, need to be investing in technology and overhauling their customer services in order to be fit for the digital age. Brexit plans and uncertainty imposed by Ogden rate changes are consuming resource but doing nothing to move our sector forward.”
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About KPMG in the UK
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 16,300 partners and staff. The UK firm recorded a revenue of £2.338 billion in the year ended 30 September 2018. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 154 countries and has 200,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.