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Discount rate review – where are we now?

Posted: 04/09/2017

Some time ago now, the High Court rejected the Association of British Insurers’ (ABI) challenge to the Lord Chancellor’s proposed review of the discount rate for personal injury damages.

The discount rate is set to calculate deductions from compensation to reflect interest that should accrue on the payment for compensation.

The High Court dismissed ABI’s argument that it had a right to see the results of the consultation so that it could then consider any further representations before a final decision was made and also disagreed with ABI’s view that it was unlawful for the Lord Chancellor not to make transitional provisions for the new rate so that it did not apply retrospectively to existing cases which had already accrued.

Claimants had long argued that the discount rate of 2.5%, set by the Lord Chancellor in 2001, was too high and that as a result they were not receiving adequate compensation and were often left with a shortfall when considering their true needs after suffering life-changing injuries. APIL had suggested the correct rate should be between 0.5% and 1.0%, based on gilt markets on 31 October 2016. However, following a review, the then Lord Chancellor set the rate at -0.75%.

This caused widespread concern amongst insurers and they continued to raise arguments and lobby the Government over the rate. The Government promised to re-examine the rate and how it would in future be set.

The Lord Chancellor has now carried out this review and has proposed that the rate should be set by reference to rates of return on ‘low risk’ as opposed to ’very low risk’ investments, as it now stands. It is also proposed that the rate will be reassessed at least every three years.

There is to be further consultation on the proposals before the final bill goes before Parliament.

The views of Penningtons Manches’ travel and personal injury teams were considered and referred to in the consultation.

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