Thoughts on the Discount Rate Review - Nicola Bickham, Veale Wasbrough Vizards
19/04/17. Claimant personal injury lawyers welcomed the announcement made by the Lord Chancellor, Liz Truss, that the way future losses in personal injury claims will be calculated has been changed to reflect the current return on investments. The last time a review took place was in 2001.
The real news should be that for the last few years with stagnant interest rates, that many injured people who have brought claims have, in fact, been under compensated. Those who have life changing injuries and their family and friends caring for them will know how costly equipment and the cost of care is. These expenses have risen way above the return that injured people have seen on their compensation over those years.
Soon afterwards the largest ever award of compensation for a severely injured brain injured child was announced. The change in the discount rate resulted in an award tripling to £9.3 million.
The Lord Chancellor's announcement to increase the funding for future losses by changing the way the figure is calculated is a long put off review. Those who suffer life changing injuries, through no fault of their own, should for the time being, receive compensation that more accurately reflects the amount they will need to spend in the future. The principle of full compensation has been long established in our law.
It may, however, be short lived. Immediately after the announcement insurers took to the airwaves through the Association of British Insurers to complain that insurance premiums would need to rise to pay for the increased compensation. In fact, however, only a very small proportion of injured claimants will benefit from this change, as it is only those with life changing injuries that will be affected. The vast majority of claimants do not fall into that category. The insurance industry is about to benefit from changes reducing compensation for the smaller value road traffic accident claims and this will restrict compensation to be paid in the vast majority of cases and also changes that mean legal costs will not need to be paid in the majority of road traffic accident claims.
It has been said that lawyers will benefit from the change to the discount rate. That is not the case. Future losses are protected in law from lawyers' success fees and there cannot be a deduction. The change is purely for the benefit of those with severe injuries.
The insurance industry is lobbying for a change to reduce the amount paid and the Government has already issued a consultation paper with a window for replying by the 7th May. With the Easter break and May bank holiday intervening this is a very short consultation period. Some may say the consultation was issued with indecent haste on the back of meetings with the insurance industry. The aim of the consultation is to consider different methods of calculating future losses. Although not explicitly stated it is likely the overall result will be for the Government to introduce changes with the effect of reducing the level of lump sum awards for future losses. At the moment the law assumes that personal injury claimants are entitled to invest in low risk low return investments and should not be at risk of losing their compensation due to the vagaries of the stock market. The consultation will consider whether those injured should have compensation assessed on the basis of investment in higher risk but hopefully higher return investments. If so, funding must also be provided for recipients of large awards to have the cost of financial advice as part of their claim.
The consultation will also consider whether there should be more encouragement for annual payments to cover future losses instead of lump sum awards. These are currently possible but there has been a low take up of the arrangement. For those who compromise their cases due to the risks of litigation or compensation reduced to take account of contributory fault they have never been an attractive proposition. This is because the annual amount would never meet all the needs of the claimant. It is difficult to see how that will change.
It is important to remember that those affected by this consultation are those who are severely injured. Even if it is true that insurance premiums will need to rise to cover these increased payments perhaps it is a price we should be prepared to accept.
For the time being it is welcome news that the Lord Chancellor has finally made the right decision even if it proves to be short lived.
Veale Wasbrough Vizards