The Association of British Insurers has launched a legal challenge to the Lord Chancellor’s decision to review the discount rate for personal injury damages. The ABI is calling on the government to change the methodology of the review before proceeding.
The discount rate adjusts personal injury damage awards to account for the expected return when a compensation lump sum is invested. It’s designed to ensure that personal injury claimants aren’t under- or over-compensated. The ABI maintains that if the government doesn’t adjust its methodology before reviewing the discount rate, “the review will take a flawed approach based on a fundamental misunderstanding of how people invest their compensation.”
“It is vital that claimants get the compensation they are entitled to, based on a formula that reflects how they are likely to invest it,” said Huw Evans, director general of the ABI. “The discount rate has a significant impact on the amounts paid out by both insurers and public sector bodies like the NHS. This calculation must therefore reflect the type of long-term investment behaviour we know claimants actually use.
“Despite two public consultations over three years ago and convening an expert panel, the Ministry of Justice has not yet shared any findings. Instead they are now trying to rush out a new rate for the first time in 15 years at a time of great uncertainty in the investment markets.”
Evans said that proceeding without changing the review methodology would be “reckless and wrong.”
“Insurers are open to a proper dialogue on how to reform the system, but this is not the way to do it,” Evans said.
The current discount rate is set at 2.5%. The Lord Chancellor has conceded that any change would have profound financial consequences, but stated that the review of the discount rate would be completed by the end of January.
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