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Published On: July 29, 2019 | Blog | 0 comments

The new discount rate for personal injury claims

It has been more than two years since the discount rate which had been set at 2.5% for many years was reduced to -0.75% in March 2017. During this relatively  short period of time, claimants were, for the first time in years, able to see a substantial increase in their damages. That was, of course, short lived, as predicted. There was an outcry from the insurance industry and increasing pressure for the Lord Chancellor to conduct a review and determine whether the rate be changed and to do so within 140 days of the implementation of The Civil Liability Act 2018, on 20 December 2018.

The Lord Chancellor finally, on 15 July, announced the much-awaited new discount rate. Much to the fury of the insurance industry the new discount rate has been set at -0.25% to be effective from 5 August 2019 and reviewed in five years’ time.

As will be familiar to all those dealing with high value personal injury claims, the discount rate is the figure essentially used to reduce damages for future loss claims. This is to reflect the fact that claimants awarded a lump sum payment for future losses can invest their monies and expect a return, thereby making a financial gain. Of course, the assumed 2.5% real net annual rate of return that existed for many years did no justice to those who suffered catastrophic injuries, particularly in cases where damages may have already been reduced for contributory negligence. It was in the current economic climate, unfair and the harsh reality of the situation meant that in most cases, claimants struggled to ensure their compensation award lasted the remainder of their life. Often, they would be forced to choose between a particular need because the award was just not sufficient to cover all their needs.

The previous indication by the Lord Chancellor was that the new rate would be between 0% and 1% and the insurance industry, anticipating more profit, was therefore shocked by the unexpected announcement. A number of cases were pushed for settlement in the interim pending the formal announcement in anticipation of a 1% discount rate thereby saving the insurance industry huge sums of money.

It was high time that the discount rate reflected the true situation of claimants who are put in this position through no fault of their own. It is only fair that the insurance industry properly compensates victims of accidents what they rightly and truly deserve.

The insurance industry has for too long benefited from the high discount rate at the expense of severely disabled claimants and the new rate will hopefully seek to give some justice to those who never wished to be in such a situation in the first place.

With all the impending reforms to civil litigation, including those seeking to wipe out claims in some instances, this announcement was very much needed and will hopefully now bring some certainty after what is often a very uncertain time for claimants.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

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