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Amendment of the personal injury Discount Rate

  • July 17, 2019
  • mmassen
  • Comments Off on Amendment of the personal injury Discount Rate

 

The Personal Injury world is always fluctuating and one of the most recent changes is the amendment of the Discount Rate. After several months of consulting, on 15th July 2019, the Lord Chancellor announced that the Discount Rate for personal injury claims will be amended from -0.75% to -0.25%. This will be implemented from 5 August 2019 and it will not be reviewed for another five years.

What is the Discount Rate?

The Discount Rate has been used for many years to calculate how much personal injury claimants should be awarded as a lump sum. It applies mainly to those who have suffered life-changing injuries and also to fatal accident cases. The rate adjusts the final sum of compensation on the grounds that any lump sum award would receive a greater return to the claimant if invested. Therefore, to achieve fairness, the Discount Rate takes into account what claimants are likely to earn on their compensation through investments, whilst ensuring that they receive the full amount of compensation they were awarded. The last significant amendment to the rate was in 2017 which was from +2.5% to -0.75%.

What does the change mean?

The Association of British Insurers have stated that the change in the Discount Rate is ‘a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money.’ The change does indeed mean that insurers will have to make larger lump sum payments on serious injury claims, to take into consideration the lower investment returns. England and Wales still also have the lowest discount rate in the Western world. A lower discount rate does lead to higher insurance costs, but this is all relative to inflation.

A better outcome for claimants

The Association of Personal Injury Lawyers were pleased with the new Discount Rate and stated that ‘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.’ This change does favour Claimants as they will receive greater lump sums of compensation.

The opinion on this change does generally vary depending on whether you work in the claimant or defendant industry. However, the justice secretary has emphasised that ‘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.’

Emily Skinner – Cohen Cramer Solicitors 17/07/2019

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