Recently, the Lord Chancellor finally revealed the new personal injury discount rate following months of consultation.
The new -0.25% rate comes as welcome news to claimants who have suffered life changing injuries; whilst this will have a negative impact upon damages, the review has not led to the more significant change urged by the insurance industry, much to their chagrin.
The Discount Rate is the figure applied to future losses to adjust the final lump sum award to reflect the interest claimants can expect to earn by investing their compensation. For many years it was set at 2.5%; however, claimants were often unable to achieve the required returns on investments from lump sum payments unless they invested in portfolios with risk.
In February 2017 the rate was changed to -0.75% and since then there has been an outcry from defendant insurers to change the rate. Whilst the new rate is an increase, it is not as high as the insurance industry were hoping for and perhaps expecting. Defendant insurers have already voiced their disappointment at the news.
The new rate came into force on 5 August 2019. The government states that the change is in line with the Wells v Wells 100% compensation principle and the new rate should allow claimants to invest in ‘low risk’ portfolios.
As a firm specialising in personal injury claims, we welcome the change in rate news which now provides more certainty when it comes to negotiating high value claims and we agree with the Justice Secretary who 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. It is also right that the rate is informed by experts and reviewed on a regular basis to make sure this important calculation is accurate every time’.