“A failure to act could lead to higher insurance premiums and even more financial pressure on the health service, as well as a restriction of the insurance marketplace with less choice for consumers.”
That is the message from global insurance law firm Kennedys, which is urging the Northern Ireland executive to change the method used to calculate its personal injury discount rate in response to a consultation issued by Stormont.
The firm highlights that at the conclusion of most successful claims, damages are usually paid in a lump sum – sometimes reaching millions of pounds. That payment may come from the government in cases of medical negligence, or from insurers in other cases. The money is then invested with the discount rate used to adjust the lump sum to factor in the income such investments are likely to generate and avoid over-compensation.
In Northern Ireland, the rate stands at 2.5% - but the Department of Transport has mooted a potential change to -1.75%. Kennedys, however, believes this could lead to significant over-compensation due to the way the rate is calculated.
Kennedys instead wants a similar approach to be adopted as that currently employed in England and Wales – determining the rate by reference to expected rates of return on a low-risk diversified portfolio of investments. It fears that the current tactic could lead to higher premiums compared to the rest of the UK.
“The overriding principle is that injured people should receive 100% of the compensation they are awarded – no more and no less,” said Amanda Wylie, managing partner of Kennedys Belfast LLP. “We in Northern Ireland can benefit from the lessons learned from the experience of England and Wales to create a fair and balanced outcome given that the compensation system is funded largely by taxpayers and consumers, and their interests must be part of the equation.”
Now it wants the Department of Justice to establish an independent panel to advise on the appropriate rate every five years.
