The insurance and legal sectors have started to react today to news that the personal injury discount rate will be readjusted to -0.25%.

Most commentators suggested the rate decided by lord chancellor David Gauke would end up nearer to 1%, and will be surprised to see the rate such a modesat adjustment.

Huw Evans, director general of the Association of British Insurers, said: 'This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money. A negative rate maintains the fiction that a claimant and their representatives will knowingly choose to invest their damages in a way that would guarantee losing them money.

'This will remain the lowest discount rate in the western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital.'

Martin Milliner, LV= general insurance claims director, said: 'Today’s announcement, whilst replacing the absurd and fiscally irresponsible decision to cut the Ogden discount rate to -0.75%, doesn’t in our view go far enough. At this level we believe that claimants will remain over-compensated, thus undermining the common law principle of 100% compensation.'

Tony Cawley, member of the Forum of Insurance Lawyers and Partner at Clyde & Co said: 'It is very disappointing that the numerous representations made by FOIL and the insurance industry have failed to be taken into consideration. Although the Lord Chancellor refers to the new statutory test in the announcement, FOIL does not believe that the new rate reflects how claimants actually invest their damages.'

Mark Burton, Kennedys partner leading the firm’s work on the discount rate, says: 'It is to be hoped that the Lord Chancellor’s statement of reasons offers meaningful transparency to compensators about the real-world net returns achieved by properly-advised claimants from investing in a low-risk mixed portfolio, considering the significance of that data to the review outcome. 

'From a claims-handling perspective, parties can at least now engage with more certainty during the next five-year review cycle. Practitioners deserve a lot of praise for the creative ways in which they have continued to settle cases whilst awaiting a resolution.'

Ben Posford, head of the catastrophic injury department at London firm Osbornes Law, said Gauke is to be 'congratulated for resisting pressure from the insurance lobby to set a higher rate than this, which would simply have increased insurers’ profits at the expense of badly injured people'.

Posford added: 'Investing damages that are needed to provide for an injured person is difficult at the best of times, and given the state of interest rates – which are likely to fall further in the event of a no-deal Brexit in particular – there was no justification for raising the discount rate any higher.'

Gordon Dalyell, president of the Association of Personal Injury Lawyers, said: 'We welcome the lord chancellor’s decision to set the discount rate at minus 0.25 per cent, after uncertainty about the impact of the government’s new approach of setting the rate on the basis that injured people should be considered "low risk" investors.

'The government has faced sustained pressure from the insurance industry to set a rate which would not be appropriate for injured people, who should not be forced to take any risk with their investments. We must remain vigilant that this new rate does provide them with the fair compensation they need and deserve.'

Richard Clark, chief executive of specialist serious injury business CFG Law, said: 'This is positive news for victims of serious injury, some of the most vulnerable people in our society. It provides them with peace of mind that the money they receive to fund their long-term care needs will be available to them throughout their lives, enabling them to achieve the best possible outcome.

'Insurers will undoubtedly complain about this but, on this occasion, this news has to be welcomed for putting the interests of injured people ahead of corporate profits and the interests of shareholders.'