As reported in the media, the discount rate for personal injury awards is being increased from -0.75% to -0.25% in England and Wales. The rate is an important took when quantifying future losses in personal injury and fatal accident claims. It is therefore highly important when considering cases of significant value.
The rate previously sat at 2.5%. It was changed in 2017 to -0.75%. It will now sit at -0.25% as of 5 August 2019 and will be reviewed again in five years.
The discount rate relates to the return that injured persons should expect from investments. A lower rate requires insurers to make larger lump sum payments. The reason for this is that it assumes lower annual investment returns for those amounts. The Ministry of Justice has said that the new rate takes into account returns available to investors and investments made, allowances for tax, inflation and investment management costs as well as wider economic factors. Ultimately, the discount rate is an acknowledgement that an injured person investing for the future is likely to adopt a lower-risk investment strategy and that the returns for that investment-type have decreased since 2001.
The insurance industry remains concerned that the amount of damages payable as a result of the discount rate. However, sources suggest that the increase will result in saving to insurers of between £230m to £300m. The overarching priority however appears to be that injured persons are adequately compensated for their losses.
The discount rate remains at -0.75% in Scotland. It will be determined shortly whether or not this is to change.
At Jackson Boyd we have a wealth of experience of dealing with personal injury claims involving future losses. To discuss a potential case with us call us now on 0141 249 6165 to speak to a member of our specialist team.