The new UK government has initiated a formal review of the Personal Injury Discount Rate (PIDR) in England and Wales, just ten days after taking office. How will this development affect both insurers and compensators?
Alistair Kinley (pictured above), director of policy & government affairs at Clyde & Co, stated that England and Wales have historically used a single PIDR. Despite the Ministry of Justice's exploration of dual discount rate models in 2023, a single PIDR model is anticipated to be maintained due to concerns over the increased complexity, cost, and delays associated with dual rates.
Kinley also emphasised that these factors could hinder fair and timely compensation in severe injury claims.
The PIDR is set to balance compensation levels, avoiding over-compensation or under-compensation. Kinley notes that unlike Scotland and Northern Ireland, where a statutory formula exists for the PIDR, England and Wales rely on the decision of the Lord Chancellor, Shabana Mahmood MP, who will consult the Government Actuary’s Department and the Treasury.
Kinley notes that their advice will be essential as the PIDR is linked to the performance of invested damages and broader economic indicators.
The review could extend up to 180 days, potentially concluding in January 2025. Throughout this period, a realistic approach to settlement negotiations will be necessary, particularly with the forthcoming formula-based PIDR reviews in Scotland and Northern Ireland expected in early October.
In a statement to the London Stock Exchange, the Ministry of Justice announced the commencement of this second review of the rate since the Civil Liability Act 2018. This legislation mandates that the Lord Chancellor must decide on any rate changes within 180 days of initiating the review, setting a deadline of 11 January 2025.
The PIDR, a percentage figure applied to personal injury damages, accounts for victims' future losses and expenses. It has been set at -0.25% since August 2019, an adjustment from the previous -0.75% set by former Lord Chancellor Liz Truss in March 2017. The rate was previously 2.5% since 2001.
The Civil Liability Act introduced regular reviews of the PIDR in England and Wales, and the Ministry of Justice recently completed a call for evidence on the calculation of the rate. During this call, the Association of Personal Injury Lawyers urged the government to consider investment handling costs and the increased tax burden before making any adjustments to the rate.
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