On 15th July, the Lord Chancellor and Justice Secretary, Rt Hon David Gauke MP, announced the anticipated discount rate change for personal injury and medical negligence settlement claims, which saw the rate increase from -0.75% to -0.25% from 5th August 2019.
What is the discount rate for personal injury and medical negligence claims?
Following the settlement of a personal injury or medical negligence compensation claim, the amount the Claimant receives for future losses is adjusted through a calculation involving the discount rate.
After the calculation, the adjusted amount will reflect what the Claimant might expect to earn on investing those damages as a cautious investor. The discount rate takes into account inflation and the level of interest payments in the long-term.
The discount rate is used to ensure that Claimants, who are in receipt of damages, are placed in the same financial position as if they not been injured (including compensating them for loss of future earnings and future care costs) and are able to invest their compensation to ensure that the funds will last them in the long-term.
The discount rate is also used to ensure that Claimants are not over compensated for their injuries by reducing lump sum damages to account for early receipt.
Reasons for the discount rate increase
The decision to increase the discount rate, which was announced to the London Stock Exchange on Friday 12th July, has come after an extensive Government review to ensure a more balanced approach to providing Claimants with fair compensation. The review formed part of the Government’s Civil Liability Act 2018.
Under the reforms specified in the Act, the Government will evaluate the discount rate within every five-year period of the previous review and will be advised by an expert industry panel.
Upon announcing the rate change, David Gauke, said:
“It is vital victims of life-changing injuries receive the correct compensation – I am certain this is the most balanced and fair approach following an extensive consultation.
“It is also right that the rate is informed by experts and reviewed on a regular basis to make sure this important calculation is accurate every time.”
Whilst the news may not be welcomed by insurers, it will be by the majority of Claimant personal injury and medical negligence solicitors across the UK.
The previous discount rate was set in 2017 and was met with consternation by the insurance industry, who argued that a discount rate at -0.75% over compensated Claimants and would cause insurance premiums to increase. The NHS Resolution (NHSR) argued that the effect of this rate would be to increase the burden of paying out claims for compensation to those injured by clinical accidents.
However, solicitors have long argued that the pre 2017 rate was unfair to Claimants and forced them to invest their compensation funds in risky investments in order to ensure that the settlement would last them for the duration of their life. The new rate has been set to reflect the fact that Claimants, who need to rely on such funds, should not have to invest in risky ventures and are to be treated as low risk investors.
If you have any questions in relation to the subjects discussed in this article, please contact Carolle or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.