Personal injury discount rate announcement
Details
Yesterday the Lord Chancellor announced that, effective as of 5 August 2019, the discount rate used to calculate future losses in personal injury and clinical negligence claims will be adjusted from minus 0.75% to minus 0.25%.
It had been widely anticipated that the adjustment would take the discount figure back into positive territory, and so the decision is unexpected and has been strongly criticised by the insurance market.
At the present time, there are no formal actuarial tables showing a minus 0.25% rate, which will obviously complicate the drafting of schedules and counter-schedules while the actuaries prepare the relevant tables.
It also means that it is difficult to demonstrate precisely the impact on reserves. However, to illustrate the significance, the lifetime multiplier for a male child aged five at the current rate, is 118.67. At a 0% discount rate, that figure would have been reduced to 83.89, at a rate of +0.5% it would have been 68.12. So, while it is clear that a move to -0.25% will have an impact, there is no doubt that multipliers will remain vastly higher than the insurance market had argued would be appropriate.
Among other issues, the negative rate will mean that accommodation claims calculated with reference to the test in Roberts -v- Johnstone will continue to return a nil allowance for capital purchase costs. That is a vexed issue in itself and is also problematic in interim payment applications, where it had previously been the case that accommodation costs could be incorporated into the cash pot from which courts would take a relatively relaxed approach to awarding interim payments.
We will advise further as matters develop.
This article was authored by David Locke
