The government will today set the ball rolling on potential changes to the personal injury discount rate - with insurers and claimants standing to lose or gain millions depending on fractional shifts.
A Ministry of Justice statement to the London Stock Exchange revealed that the lord chancellor, David Gauke, will announce today that the first review of the rate under the Civil Liability Act will start immediately.
The act requires the lord chancellor to conduct the review and determine whether the rate should be changed within 140 days. His decision will therefore come by 5 August.
The stakes are high for all sides in the personal injury sector. Insurers were furious when former lord chancellor Liz Truss changed the rate in 2017 from a discount of 2.5% to the current -0.75%. The 2.5% rate had been in place since 2001. Best estimates presently are that the MoJ will opt for a discount of less than 1%.
Earlier this month, insurance giant Admiral said its profit before tax for 2018 was £479.3m based on a 0% discount rate, compared with £413.3m when applying the current -0.75%. A revised rate would result in an extra 11p per share paid out in dividends.
Brett Dixon, president of the Association of Personal Injury Lawyers, urged the lord chancellor to base his decision on the needs of people who have suffered life-changing injuries, rather than insurers’ balance sheets.
’It is also important to remember that compensation for very serious injuries can sometimes be paid by installments (‘periodical payment orders’, or PPOs),’ he added. 'The need to address barriers to that system is now urgent. The needs of some catastrophically injured people are best served by a lump sum payment, others by installments and still others by a combination of the two. If the government is determined to make changes to the discount rate, it is important to make sure we have a new way of using PPOs at the same time.'
James Dalton, director of general insurance policy at the Association of British Insurers, said: 'We welcome today’s announcement. Insurers remain committed to paying 100% compensation and want to see a process for setting the discount rate that delivers a fair outcome for claimants, motorists and taxpayers. The outcome of the review must deliver this, and we will continue to play our part to ensure that it does.'
The Ministry of Justice has already called for evidence on issues of relevance to the setting of the discount rate, with parties getting their submissions in by the end of January. While the new rate is yet to be decided, the government has previously said its evidence shows the present system regarding the setting of the discount rate is likely to be producing ‘significant levels of over-compensation’.
The government maintains that any changes to the discount rate will be in line with the principle of payees receiving 100% of their compensation.