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Discount rate boost for injury claimants

15 July 2019

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In welcome news for claimants, the new personal injury (PI) discount rate for lump sum settlements has been adjusted to -0.25 per cent.

The announcement of the new rate followed the first rate review by Lord Chancellor and Justice Secretary David Gauke which involved a lengthy consultation.

The new Ogden Rate has been increased from -.75 per cent but falls short of what insurers were hoping for.

However, the government says the new rate offers a more balanced approach to compensate personal injury claims. The new rate will come into effect on 5 August 2019.

The discount rate reflects the return that injury claimants may expect to receive when they invest their personal compensation.

Under the Civil Liability Act 2018, the Lord Chancellor had to conduct a review of the rate and decide within 140 days whether it should be changed.

A further review must be conducted within five years.

Justice Secretary David Gauke said: “It is right that the rate is informed by experts and reviewed on a regular basis to make sure this important calculation is accurate every time.”

Ben Posford, head of the catastrophic injury department at Osbornes Law, said: “David Gauke is to be congratulated for resisting pressure from the insurance lobby to set a higher rate than this, which would simply have increased insurers’ profits at the expense of badly injured people.”

He said investing damages that are needed to provide for an injured person is difficult at the best of times and “given the state of interest rates – which are likely to fall further in the event of a no-deal Brexit in particular – there was no justification for raising the discount rate any higher”.

The Association of Personal Injury Lawyers (APIL) also welcomed the announcement.

APIL president Gordon Dalyell said: “We welcome the Lord Chancellor’s decision to set the discount rate at -0.25 per cent, after uncertainty about the impact of the government’s new approach of setting the rate on the basis that injured people should be considered ‘low risk’ investors.”

He commented that the government has faced sustained pressure from the insurance industry to set a rate which would not be appropriate for injured people, who should not be forced to take any risk with their investments.

“We must”, he warned, “remain vigilant that this new rate does provide them with the fair compensation they need and deserve.”

Defendant PI solicitors are less positive. Mark Burton, partner at defendant PI practice Kennedys, said the announcement “confounds market predictions of a positive rate and risks continuing overcompensation”.

He added: “It is to be hoped that the Lord Chancellor’s statement of reasons offers meaningful transparency to compensators about the real-world net returns achieved by properly-advised claimants from investing in a low-risk mixed portfolio, considering the significance of that data to the review outcome”.

However, he acknowledged that from a claims-handling perspective, “parties can at least now engage with more certainty during the next five-year review cycle”.

“Practitioners deserve a lot of praise”, he added, “for the creative ways in which they have continued to settle cases whilst awaiting a resolution. The new statutory process of regular reviews should ensure that the market does not experience similar disruption again.”

The insurance industry is dismayed by the new rate saying a lower rate leads to higher insurance costs.

Huw Evans, director general of the Association of British Insurers, said: “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.”

Announcing the new rate at the London Stock Exchange on 15 July, David Gauke acknowledged the “impacts this decision will have on businesses, the public sector and charities on the amount of damages that may be payable in any personal injury action to which they may be party”.

He said he would be laying an impact assessment before parliament.

 

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Personal injury