The Lord Chancellor at the time Liz Truss,  announced changes to the Discount Rate from 2.5 per cent to  -0.75 per cent on 27TH February 2017 and it came into effect on 20th March 2017.  This was met with a backlash from the insurance industry and future changes are now anticipated.

Compensation awarded in personal injury claims is intended to put the Claimant in the position they would have been had they not suffered an injury.

The Discount Rate is known as the Ogden Discount and is set by the Lord Chancellor.  It is only reviewed periodically at the moment.  The Discount Rate is applied in more serious personal injury cases where there is a future loss claim i.e. for loss of earnings if they are no longer able to work as a result of the accident or ongoing treatment may be required because of their injury or ongoing care.

When the Claimant receives a lump sum payment including a claim for future loss, it is recommended the Claimant should take financial advice and invest this money for their future subsequently receiving a return on their investment.

The current Discount Rate of -0.75% reflects the likely rate of return on the investment.

The discount rate was previously set at 2.5% for the last 16 years up to March 2017 despite significant cuts to interest rates.  It is calculated with reference to Index Linked Gilts but because of the significant decrease in interest rates it is virtually impossible to secure a safe investment with a return of 2.5% which means perhaps thousands of severely injured people have previously been undercompensated as a result of the Discount Rate remaining the same.  The Chancellor subsequently reviewed and changed the Discount Rate to -0.75%.

In September 2017 the ABI (Association of British Insurers) pushed for new legislation and the MOJ (Ministry of Justice) has published draft legislation to create a system for the setting of the Discount Rate.  The provisions have been welcomed by the ABI and it is anticipated the new rate will be set between 0 and 1% with a review every three years rather than periodically.

The initial review in relation to the above changes is not likely to be before Easter 2018.

Claimant’s solicitors have previously had to withdraw an offers made on claims including future losses and make amendments to Schedules since March 2017 to ensure we do not under settle claims after the discount rate changed.

Larger claims with future losses are likely to be effected again in 2018 subject to the discount rate being changed again to between 0% and 1% and solicitors need to keep a close eye on developments.

Any changes do not apply retrospectively but will apply to all future settlement and assessment by the Courts.

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