David McKinney | Partner

When less is more

As has been widely reported in the media, the discount rate for personal injury awards is being reduced from 2.5% to -0.75%. The Scottish government has introduced the change under the Damages (Personal Injury) (Scotland) Order 2017, which comes into effect on 28th March 2017.

The rate has been unchanged since 2001. The rate is an important tool when quantifying future losses in personal injury and fatal accident claims.

When assessing future losses, the court will arrive at an annual figure as the starting point in the calculation. That figure will then be multiplied by a multiplier. The multiplier takes into account the investment return which could be generated using the lump sum. By using a lower discount rate from the Ogden tables the multiplier is increased. In effect, the lower 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.

While this will result in significant increases in damages for an accident victim suffering a long-term personal injury, the insurance industry is concerned about the impact of these increases and is making significant provision in their profit and loss accounts for the sums involved. Brief research against several of the major insurers quickly arrives at a provision figure of almost £700 million.

It seems almost inevitable that one of the consequences will be the introduction of more regular reviews of the discount rate.

Sources:-

http://www.legislation.gov.uk/ssi/2017/96/note/made

David McKinney

David McKinney

Personal Injury Team

“It is a privilege to act for our clients at a difficult time in their lives. I always aim to provide them with clear, practical advice in an approachable way.”

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