Changes to the Personal Injury Claims Discount Rate
The discount rate for personal injury claims is a factor used in the calculation made by the courts when arriving at the compensation to be awarded to claimants.
It is intended to give claimants the ability to invest their money in such a way that they can live off their compensation for many years, in some cases for the rest of their lives.
It is calculated by reference to returns on low-risk investments such as index-linked gilt-edged government stocks. The sum payable is adjusted using the discount rate, and takes into account the amount of interest a claimant might receive if the money were to be invested. With interest rates at historically low levels, with effect from 20 March the rate has been revised down from 2.5% to a negative figure, – 0.75%.
What this means for claimants, insurers and the NHS
Campaigners and groups representing claimants have been quick to praise the decision for reflecting the current investment climate. They have had to wait for a long time to get a revision in the rate; it was last reviewed and set at 2.5% in 2001. In the meantime, interest rates have dropped dramatically, meaning that claimants have seen their investment returns fall away, and in some cases found themselves facing financial hardship due to a lack of income and insufficient funds to cover care costs.
Although the decision will be welcomed by claimants, concerns have been raised by some insurers who fear that the potential for increased claims will put them under greater financial pressure and mean that insurance premiums will have to rise. The NHS may feel the strain too. The likelihood of claims generating higher pay-outs could put some NHS trusts under further financial pressure.
Ministry of Justice Consultation
The Ministry of Justice has launched a consultation into the operation of the personal injury discount rate framework, including whether it should be set by an independent body, rather than the Lord Chancellor. The government has pledged appropriate funding to cover the likely additional costs that the NHS will bear following the change in the discount rate.
Madeline Seibert, Partner and Head of Medical Negligence, welcomes the changes as a fairer way of calculating compensation claims and comments: “As a result of this change in the rate, damages in cases involving future loses are likely to be much higher going forward. In some cases, we have had to withdraw offers of settlement and negotiate higher compensation awards to take account of this new lower, more realistic rate”.