The Lloyd’s Market Association (LMA) has called for major changes to the way the personal injury discount rate is set.
The discount rate, also known as Ogden, is currently set with reference to Index Linked Gilts, rather than the balanced investment portfolios widely used by claimants, which the LMA said will “inevitably lead to over-compensation of claimants.”
In a release, the LMA also expressed concerns that the rate is set solely by the Lord Chancellor under powers granted by the Damages Act 1996, a process the association called “inadequate.”
“The discount rate should be based on a realistic investment vehicle, to make it more accurate, reducing the risk of over-compensation,” David Powell, non-marine manager at the LMA, commented. “We are suggesting using the average yield of a model low-risk portfolio, better reflecting what claimants actually do with their money.”
Responding to the Ministry of Justice’s consultation, the LMA suggested a model portfolio should be agreed by a suitable panel of experts and published for transparency.
It added that the Ogden rate should be reviewed periodically to reflect material changes in the yield of the underlying portfolio, and advocated for measures to “smooth the effect of short-term economic volatility,” including limiting rate changes to one per year, and a maximum shift of 100 basis points at a time.
“A new process would provide greater certainty and transparency, reducing the risk of unexpected and significant changes in the rate,” Powell added.
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