Personal Injury Discount Rate U-Turn Fear
As of March 2017 the then Lord Chancellor Elizabeth Truss changed the personal injury discount rate from 2.5% per annum to 0.75%, a rate that had not been reviewed for 15 years.
The government now proposes to review the rate at lease every three years in future.
The discount rate is applied to large sum personal injury pay outs which often involve periodic payments for future care and loss of earnings. The money that is invested and the discount rate applied affects the future yield of the compensation money. The higher the discount rate the lower the return.
Those who have suffered lifelong injuries should have the reassurance that the sum the wrongdoer is ordered to pay will genuinely be sufficient to meet their needs of the rest of their lives and will not run out leaving them unable to afford treatment and support.
The discount rate must be set to meet the needs of catastrophically injured people. A person with life-long, life-changing injuries such as brain damage or spinal injury cannot afford to take any risks with how their compensation is being invested.
Let’s make it clear here, that this is not a matter that affects the majority of personal injury claims such as those claimants who suffer whiplash or injuries of a relatively minor nature such as those claims submitted on the Ministry of Justice Portal, with a value of under £25,000.
These claims have been regulated by the Jackson reviews since 2013 which introduced the MOJ Portal and fixed recoverable costs. These reviews changed the landscape of personal injury claims, with a lot of law firms coming out of this area of law due to unprofitability and has as led to huge profit increases by motor insurers.
Yet, the announcement of change in the discount rate immediately saw insurers labelling the decision as “crazy” and has to lead to heavy lobbying by insurance companies to Downing Street to have the decision revised.
Insurance companies raised their insurance premiums to new high levels, it could be said to put further pressure on the government as they are aware as to what the outcome of any decision might be that is unfavourable to their industry.
There is now further review from Parliament which was due to be released in July but is still awaited.
This has led to insurers dragging their feet over settling claims while they wait and hope for a revised rate. Defendant insurers have been seen to put off meetings to settle cases in the hope they may find a way around the rate that has been set through the pending consultation.
But is this in the interest of justice? Or do powerful insurance companies now bullishly rule government policy by holding the end consumer at ransom with high insurance premiums, insisting that increased compensation payments will come out of insurance premium prices rather than their profit margins.
Let’s take an example of a catastrophically injured claimant who settled a case under the old discount rate who now face the knowledge that they did not receive enough money to cover future costs. Under the old discount rate a claimant with a 20 year life expectancy entitled to £100,000 every year, the final sum would now be £2.159m using the new discount rate as opposed to the £1.578m the claimant would have previously received.
The claimant needs this money to keep a roof over their head, to fund equipment, for food and clothes, and to pay for care for the rest of their life.
How the Ministry of Justice respond regarding the new formula for calculating the discount rate will be critical to injured people.
Let us hope the final decision will be driven by the interest of justice and not the profit margins of insurance companies.