Lord Chancellor announces that decision on discount rates will be published by 31 January 2017
The Ministry of Justice has confirmed that the results of a long-awaited review of the discount rates for calculating personal injury compensation will be published by 31 January 2017.
The consultation into proposed changes closed in 2012, and a decision has been outstanding ever since.
The discount rate, which is currently 2.5%, is set by the Lord Chancellor, and the current rate has been in place since 2010.
The purpose of the discount rate is to ensure that compensation payments reflect the investment return which the recipient can be expected to achieve on a lump sum payment which is received in respect of future losses which are yet to be incurred.
APIL has been campaigning for a number of years that the existing rate of 2.5% does not accurately reflect current returns on risk-free index-linked government investment bonds. It has therefore been arguing that claimants are unfairly penalised, and that the rate should be reduced.
Whilst the result of the announcement is awaited, in the event that there is a reduction in the discount rate, this will have a significant impact upon awards of damages for future losses, as multipliers for future loss will increase.
Taking, for example, the multipliers for future losses from Table 1 of the Ogden tables (7th Edition), for a male aged 20 years at the date of trial, the following effect can be seen:
Table 1 multiplier for male aged 20 years:
The effects of such a change would be likely to impact the appetite of both claimants and insurers to conclude claims with significant future losses on a lump sum basis (compared to settling by way of periodical payment orders).
In the event that there is a change in discount rates, insurers will no doubt need to review reserves held, to take into account the effect on awards in respect of future damages. In addition, the protectiveness of Part 36 offers may need to be reconsidered.
In the short term, the uncertainty about the outcome of the result in January may impact the willingness of claimants to settle claims, as a reduction in discount rates could significantly increase the value of future losses.
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