The government is to recalculate the personal injury discount rate again, after a Ministry of Justice (MoJ) consultation found serious injury claimants take more risks with investment than the law assumes.
The rate is used to predict investment return in order to calculate how much compensation is awarded to serious injury victims.
It was reduced from 2.5% to -0.75% in February this year by the previous Lord Chancellor, Liz Truss. Many claimant lawyers welcomed the move at the time, although critics warned it would cost the NHS substantially more in payouts.
The MoJ has since carried out a consultation. Ministers this week proposed draft legislation that would set the rate by reference to ‘low risk’ investments, rather than the current assumption that claimants make ‘very low risk’ investments. They also proposed reviewing the rate more regularly, at least every three years, and creating an independent expert panel to help the Lord Chancellor carry out the review.
David Lidington, the Lord Chancellor, said: ‘We want to introduce a new framework based on how claimants actually invest, as well as making sure the rate is reviewed fairly and regularly.
‘While it is difficult to provide an estimate, based on currently available information if the new system were to be applied today the rate might be in the region of 0% to 1%.’
Mark Burton, partner at insurance firm Kennedys, said: ‘It’s absolutely right that the discount rate should properly reflect real-world investment behaviours and financial returns.
‘The current rate based on ILGS results in significant overcompensation, if claimants are securing better returns from low-risk mixed portfolios. At the claims level, both claimants and compensators have in any event been pragmatically negotiating settlements within the 0% to 1% range since February, regardless of the prevailing -0.75% rate, in anticipation of further reforms.
‘The new methodology may therefore lead to a new rate within a similar range to that widely adopted by the market anyway. The more rigorous methodology proposed in the draft reforms, including periodic reviews and independent expertise, will hopefully avoid future controversy and ensure a fairer process.’
However, Peter Todd, solicitor at Hodge Jones and Allen, who advised the Association of Personal Injury Lawyers (APIL) on the discount rate for a number of years, said: ‘Whilst many claimants succeed in their investment risks, inevitably some will fail, and will now no longer have a guaranteed safe, secure and dignified future.
‘The Conservative government has prioritised the insurance industry’s profits over the secure and dignified future of injured people. It remains to be seen whether they can find a Parliamentary majority to enact the proposed new legislation.’
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