Insurers complain after Lord Chancellor announces change to discount rate for personal injury claims

A change to the way personal injury compensation payments are calculated has been revealed and is due to come into effect from 5th August Lord Chancellor David Gauke has announced, to the anger of insurers.

APIL (the Association of Personal Injury Lawyers) says that the increase from minus 0.75 per cent to minus 0.25 per cent could bring insurers savings of between £230m and £300m, based on the Government’s impact assessment. However insurers, who pay out less as a lump sum when the rate is higher, have complained that the increase is not as much as they were expecting.

The personal injury discount rate is a percentage that adjusts the final figure of lump sum compensation payments awarded to victims of a life-changing injury. This rate reflects the interest that claimants can expect to earn by investing these payments, and the effects of tax, expenses and inflation on these returns.

The idea behind the discount rate applied to the compensation for future financial loss is to ensure that claimants receive the full compensation they were awarded by taking into account what they are likely to earn on that money before they are expected to have spent it.

Justice Secretary David Gauke said: “It is vital victims of life-changing injuries receive the correct compensation – I am certain this is the most balanced and fair approach following an extensive consultation.”

The rate was last set in 2017 when it was lowered from plus 2.5 per cent to minus 0.75 per cent which insurers urged the government to review, arguing that the resulting increase in damages would have an immediate effect on premiums. This rate change also led to concerns that claimants were being significantly over-compensated, resulting in increased financial pressure on public services such as the NHS that have large personal injury liabilities, and knock-on effects to the tax payer.

Wayne Vickers, Personal Injury Associate at Rothera Sharp said: “The Lord Chancellor’s decision to set the discount rate at minus 0.25 per cent will be welcome by Claimants.

“Hopefully this rate will ensure that those that have suffered life changing injuries through no fault of their own will be fairly compensated; however, a close eye will need to be kept on the rate, to ensure that it does indeed result in Claimants receiving the compensation they need.”

An independent expert panel will review the new rate within five years in accordance with the new legislative methodology, to ensure it remains fit for purpose in the future.

Wayne Vickers - Rothera Sharp Solicitors, Nottingham

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