Discount Rate – changes to minus 0.25% - why is this important?
16 July 2019
The Discount Rate has changed again on 15 July 2019. The new rate will be effective on 5 August 2019. It is necessary however to go back in history a little to understand why this is so important.
Between 2001 and 2017 the Discount Rate was set at plus 2.5%. This meant that in the financial market conditions for much of this period people who suffered catastrophic injuries in for example road traffic accidents, accidents at work or following medical treatment, were grossly under compensated and found themselves running out of money before they passed away and would become reliant upon the State for care provision and to meet their loss of earnings by way of benefits provision.
Following many years of lobbying and threatened Judicial Review, the Government launched a review into the Discount Rate and after taking financial advice arrived at a Discount Rate of minus 0.75%. The Insurance Industry responded saying this was cataclysmic and would end insurance as we knew it and demanded a review. The allegations of ‘ambulance chasing’ were raised again, despite this change only affecting the most catastrophically injured persons in society, who insurance is meant to best serve. Without a doubt the damages awards did increase, but it should not be forgotten that the previous 15 years saw gross under compensation and financial benefit to the insurers who now claimed poverty.
The insurance industry got the review they wanted. The review went further and regulated the discount rate so that in the future it must be subject to 5 yearly independent so that it more accurately reflected market pressures review (an interesting note is that Claimant’s sought 3 year reviews but the Government and presumably therefore insurers went for 5 years). Predictions fluctuated but the general expectation was a figure of about plus 1% would be announced.
Today the Lord Chancellor announced the new Discount Rate would be set at minus 0.25%. This is likely to infuriate the insurance sector but now they must respect the rate for the next 5 years.
It does indicate that the original revision to minus 0.75% was not so incorrect to be unacceptable.
No catastrophically injured person ever wins damages. Rather they are awarded damages that they need to manage their lives and manage their care needs for the rest of their life. No catastrophically injured person I have ever acted for has said they are happy they are injured. Every one of my clients would give back every penny if they could be restored to their former uninjured life.
An added point arising from this change is some of the otherwise anticipated burden being returned to the State has been avoided. Claimants are less likely to run out of money in their lifetime and therefore less likely to have to rely upon the State while insurers see their profits.
There will inevitably be press comments that the lawyers are making money again at the expense of the NHS and that Insurers will be forced to increase their premiums, but factually there is very little merit to this. Drivers and employers have an obligation to have liability insurance. When catastrophic injuries do occur those injured people are entitled at law to have their lives restored to as close as possible to the life they should have enjoyed. The only way this can normally be achieved is with damages. Reduction of the volume of these type of injuries should be the concentration of the insurance industry as that is the real way of saving money.
For the NHS, who do a phenomenal job, when a patient is injured that patient likewise should be restored to the position they should otherwise have been in. Reduction in avoidable harm (by training and central investment) should be the aim as that is the method by which compensation payments will be reduced.
It is time for the press and insurers to stop blaming injured persons and injured patients for claiming the damages they need to restore their life. Some degree of fairness has been maintained.
The Clinical Negligence and Catastrophic Injury Team at Curtis Law is led by Jerard Knott, Senior Associate Solicitor, an APIL Accredited Senior Litigator and Clinical Negligence Specialist. It also includes Lynne Ainsworth, a Law Society Accredited Clinical Negligence Panel Member. We are committed to promoting Patient Safety. The team only acts for Claimants and is dedicated to providing a client care centered high level of service, providing the best possible advice and maximising damages. The department acts on a large number of fatal (including representation at Inquests) and high value cases. The department regularly advises on cases with valuation exceeding £1,000,000. We can be contacted on 01254 297130 or MedNeg@curtislaw.co.uk.
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