Insurers have mounted a legal challenge to lord chancellor Liz Truss’s decision to review the rate at which personal injury awards are discounted. The Ministry of Justice confirmed earlier this month that it would publish the outcome of its review of the rate by the end of January 2017.

The rate, used to calculate the level of deduction from damages payments based on the claimants’ assumed interest earnings, has long been contested by all sides of the personal injury sector.

The Association of British Insurers (ABI) has now said it will judicially review the decision to review the rate. The insurers’ representative wants a proper consultation to be completed and for the government to change its methodology for calculating the discount before proceeding.

The challenge is an indication that insurers expect the discount rate to fall from its current level of 2.5% to reflect current interest rates.

Huw Evans, director general of the ABI, said: ‘Despite two public consultations over three years ago and convening an expert panel, the Ministry of Justice has not yet shared any findings. Instead they are now trying to rush out a new rate for the first time in 15 years at a time of great uncertainty in the investment markets.

‘To proceed in these circumstances is reckless and wrong. Insurers are open to a proper dialogue on how to reform the system but this is not the way to do it.’

The ABI says the UK is unique in basing its discount rate on the yields from index-linked government gilts.

Insurers say the principle of full compensation is no longer served by this link, as long-term investment behaviour of compensated claimants is so different in practice.

The MoJ consulted in 2012 on the methodology that should be adopted but the ABI says the department has breached Cabinet Office guidelines by not responding to this consultation.

It also points out that the MoJ has not published a report made in January this year following a review of consultation responses by a panel of experts.