As the Shipowners Club informed, the Lord Chancellor announced a change in the discount rate after a review under the Civil Liability Act 2018. As of 5 August 2019, the discount rate will increase from -0.75% to -0.25%.
The discount rate is a figure aiming to help calculate lump sum compensation payments for high value personal injury claims. It reflects the fact that a Claimant will invest a lump sum payment and receive a return on such investment.
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In the recent review, the Government had the opportunity to readdress what many insurers saw as an imbalance between how it is expected that Claimants will invest their lump sum personal injury damages awards and how they actually invest them.
As the Shipowners Club said, there is a common acceptance among many in the industry that today’s rate of -0.75% has led Claimants to be overcompensated.
There was no doubt therefore that the review, the first of its kind since the introduction of the Act, would produce an increase in the discount rate. However, in many insurers opinions, this result has not readdressed the ongoing imbalance and therefore is seen as an opportunity missed. It was anticipated that the discount rate would increase to somewhere between 0% and +1%
This rate applies in England and Wales only and will not be reviewed again for a period five years. A similar review process is currently being carried out in Scotland with a predicted rate of -0.25% there too. In Northern Ireland the discount rate is +2.5%.
Under the recent review, there was also the possibility of a split rate, indicating the difference in potential returns over relatively longer and shorter periods. However, this was not pursued. In contrast, earlier this year The States Assembly approved a draft law in Jersey which established a rate of +0.5% in respect of losses for a period of up to 20 years and a rate of +1.8% for losses over a longer period. This is the first time that Jersey will have a statutory discount rate. Guernsey is likely to follow suit.
Because of this disparity, there is more potential for forum shopping and insurers to find themselves in situations where they will want to focus more than they perhaps have in the past on where proceedings should be occurring.
This rate change will mean that the level of damages payable on high value claims will fall slightly but damages will continue to be uplifted for accelerated receipt on the assumption that Claimants will invest their damages in a way that will result in them losing money. In practice this is not the case
the Club concluded.
