The ‘Discount Rate’ Reform causes commotion amongst the insurance industry

  • April 5, 2017
  • As of 20th March 2017, the discount rate applied to lump sum compensation awards, has been reduced from 2.5% to -0.75%. So, what does this mean for the injured parties?

    Where an individual suffers a significant personal injury, and in some cases which is life-changing, they are often compensated by the court with a lump sum monetary award.

    When the court determines the final figure, they apply a formula called the Discount Rate, where the actual sum is adjusted to take into account the interest that they could have expected to receive if they had put the money into an index-linked government bond.

    Last reviewed in 2001, the reform itself was anticipated, but the drastic decrease has shocked many insurers, some of which believe this radical move will cost them millions in profit. The impact can already been seen from the catastrophic drop in insurance company share prices.

    On the other side, The Association of Personal Injury Lawyers (APIL) has applauded the change, which we firmly agree has been a long time overdue.

    People who suffer severe life-changing injuries can now be assured that the compensation needed to look after them is calculated correctly and is sufficient to provide care for the rest of their lives,” said APIL.

    Andrew Tyrie, chairman of the Treasury Committee, said “The principle that people should receive full compensation for the losses that they have suffered is a reasonable one“.

    A consultation will be carried out before Easter on how the discount rate should be reviewed moving forward, including the prospect of using a self-governing body to reach the decision if a variation is deemed necessary. The Association of British Insurers (ABI) are challenging the Government to abolish the current compensation formula. Huw Evans, the ABI’s director general says:

    “To make such a significant change to the rate using a broken formula is reckless in the extreme, and shows an utter disregard for the impact this will have on consumers, businesses and the wider operation of the insurance market,”

    To try and tackle insurers concerns, the following 4 key pledges have been made:

    1. the government has committed to safeguarding the NHS Litigation Authority by ensuring that it has adequate funding to cover fluctuations to any hospitals’ clinical negligence costs;
    2. the Department of Health will work closely with GPs and defence medical practitioners to ensure that suitable funding is available to meet any additional costs to GPs, identifying the key role they play in the delivery of NHS;
    3. the government will arrange a conference in the coming weeks to consider whether there is a fairer structure for claimants and defendants, with the government bringing forward any essential legislation; and
    4. Representatives of the insurance industry will meet with Chancellor of the Exchequer Philip Hammond to consider the impact of the rate amendment.
    Peter Savage is a Solicitor in the Medical Accident Group's Personal Injury Department. Call him free today on a no win no fee basis: 0800 050 1668

    Peter Savage, Head of Personal Injury at the Medical Accident Group

    It seems these concerns have not gone unnoticed, as collectively, the Ministry of Justice and the Scottish Government has now released a Consultation Paper allowing deliberations on the new discount rate until the 11th May 2017. This consultation period has been set predominantly to focus on how and when this new rate is to be set and more crucially, who and what determines the level in which it is set. In addition, it is also intended to address Periodic Payment Orders, which are now increasingly being used to settle catastrophic personal injury claims in the UK. This is when compensation is paid to the injured party at fixed intervals, opposed to the traditional single lump sum award.

    Peter Savage, Head of Personal Injury at the Medical Accident Group says, “Here at the Medical Accident Group we have experience of dealing with cases where individuals have suffered catastrophic injuries due to recklessness and negligence of another. It was reprehensible where victims who require life-long care would receive less compensation than they require, through no fault of their own. Hopefully, the reform will address this failing and claimants’ will receive what they truly require, though until the consultation period has concluded nothing is certain.”

    Have you suffered a personal injury in a road traffic accident or at work, and as a result require life-long care? If you think we might be able to help you, speak to our team for free on 0800 050 1668 or email us at

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