Ahead of the advice curve

In the face of legal action from the Association of Personal Injury Lawyers, the government is set to announce the result of its review of the discount rate for personal injury claims.

The rate has been set at 2.5 per cent since 2001. It is intended to reflect the net real return on the investment of damages based on yields from index-linked government stock. However, due to the low rate of return on investments, it has been argued that the current rate is too high, leading to injured people being undercompensated.

The government’s announcement was scheduled to be made on 31 January 2017. However, on 27 January 2017, the Lord Chancellor advised the review has taken longer than anticipated. In light of this, no announcement has been made but she ‘remains committed’ to making an announcement in February 2017. As yet, a date has not been scheduled.

For those working within the insurance sphere, you will be well aware of the debate surrounding this issue, and it is not intended to delve into the debate any further here. However, the potential impact of a change in the discount rate on insurer client reserve figures could have practical implications for those of us providing advice in this area.

The following are some practical observations which may require some thought in anticipation of the Lord Chancellor’s announcement:

• It is understood that claimant agents intend to argue for a reduced discount rate in current ongoing cases. It seems that the anticipated change is already being reflected in negotiations, and so is something to be alive to now, not just after the announcement.
• For existing claims, where reserve figures have been fixed, these may need to be reviewed once the change is announced. In the event the discount rate is reduced, then the valuation of claims for future loss will inevitably increase. Have you considered the extra man hours that might be required to review all ongoing cases involving claims for future loss?
• Once the Lord Chancellor’s announcement has been made, do you have the systems in place to ensure that future reserve advice captures the changes and that all of those providing reserve advice to clients are aware of the impact of the change?

This is by no means an exhaustive list, and adapting to the change may involve a process of collaboration with individual clients. Insurers are well aware of the changes, and are taking steps to ensure they themselves are prepared for the change.

It is important that as legal advisers we all keep ahead of the curve and informed of the changes, and implement systems to ensure accurate and up to date advice is provided to clients.

Megan Lafferty is Scottish representative for Tomorrow’s FOIL and a solicitor at BTO Solicitors

@TomorrowsFOIL www.tomorrowsfoil.org.uk