PI discount rate debate

Further research into claimants’ attitudes to investment risk is needed before the personal injury discount rate is changed, the Law Society has said.

Last week, the Ministry of Justice (MoJ) said it would recalculate the rate after its consultation found serious injury claimants take more risks with investment than the law assumes.

Ministers proposed setting the rate by reference to ‘low risk’ investments, rather than the current assumption that claimants make ‘very low risk’ investments. They proposed regular reviews, at least every three years, and creating an independent expert panel to help the Lord Chancellor carry out the review.

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 insurers warned it would cost the NHS substantially more in payouts.

Under the proposed system, the current rate would be in the region of 0% to 1%, David Lidington, the Lord Chancellor, said.

Law Society President Joe Egan said he welcomed regular reviews and the inclusion of an independent panel of experts, but called on the MoJ to ‘commission further and more in-depth research into claimant investment behaviour to confirm existing base assumptions’.

Peter Todd, solicitor at Hodge Jones and Allen, said: ‘While many claimants succeed in their investment risks, inevitably some will fail, and will now no longer have a guaranteed safe, secure and dignified future.’

However, 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.’