Right about the Discount Rate

This article first appeared in Modern Claims Magazine, Issue 25, May 2017

Right about the Discount Rate

The reaction to the reduction in the Discount Rate has been as predictable as it has been disappointing. When Liz Truss announced the first change since 2001, it was certainly the legally correct thing to do. As she said, “the law was absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants. I am clear that this is the only legally acceptable rate I can set”. In finalising compensation on the more substantial claims, the courts apply this calculation with the percentage linked typically to Index-Linked Gilts. In cases where there is any element of future loss, but particularly where the claimant is relatively young or the multiplicand is relatively high, this small change in the Discount Rate will potentially have a significant effect on the value of future damages.

The previous rate was quite simply not adequately compensating seriously injured people for their future losses in the way the law intended.

It was also the morally correct approach. Those innocent people who are unfortunate enough to suffer severe and life changing injuries deserve to have their compensation awards set at an appropriate level adjusted for the current economic environment.

These seriously injured people are financially dependent upon the compensation, which they must live on for a lifetime. If the lump sum received is less than is necessary to cover daily expenses due to not being able to work or for care costs or ongoing treatment, this can cause severe anguish and hardship. To be blunt, the adjustment should now free these people from the fear that the money will dry up whilst they are alive. The only person to benefit from the new rate is the claimant. That typical punch-bag, legal costs, will not be impacted.

The response from the insurance sector was that it was “crazy” and that there would be an “inevitable” increase in motor and liability policies, wiping out any proposed savings from the whiplash reforms. The reality is that insurers have long known that the rate should be adjusted and could have taken appropriate steps for consumers. As the legal expenses insurer ARAG has said, the insurance industry’s response to the adjustment may give the impressing of an industry that is “shallow, self-interested and heartless”. It was the right decision, and lobbying to the contrary should be resisted.

Simon Stanfield is MASS Chair and a Partner at Simpson Millar


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