By: 26 March 2017
ABI says that increase in inflation requires a “more sensible” Discount Rate

The Association of British Insurers has said that the 0.5% increase in the Consumer Price Index (CPI) inflation measurement requires the Government to review the new Discount Rate as soon as possible.

The Ministry of Justice announced that the Discount Rate – used to calculate damages for those suffering life changing injuries from clinical negligence – would drop from 2.5% to minus 0.75% in February.

Huw Evans, director general of the Association of British Insurers, said that the increase in inflation, which has taken CPI above the Bank of England’s target for the first time since September 2013, had made the Discount Rate cut “even more absurd”.

“This will inevitably feed through to premium prices driving inflation even higher, a reality the Government’s own fiscal watchdog the Office of Budget Responsibility has confirmed,” said Evans.

“With further pain to come in June when Insurance Premium Tax will go up from 10% to 12%, it is more important than ever that Government bring in a more sensible Discount Rate as soon as possible.”

The ABI’s repeated calls to review the new Discount Rate have been met with indignation by the claimant community. Many commentators have said that the new rate means that claimants with life-changing injuries will finally receive a compensation sum that better reflects the actual costs and losses that they will incur over their lifetime.

Adrian Denson, director of serious injury at Fletchers Solicitors said: “Under the previous rate, a discount of 2.5% was taken into account to determine how much a claimant should be awarded to cover their future life costs. This 2.5% was based on the assumption that claimants would likely invest their compensation, and would make around a 2.5% net return on it.

“However, with the state of today’s economy, this assumption is simply not realistic. For anyone looking to invest, it’s highly unlikely they’ll make such a high rate of return. So for claimants whose cases have already settled under the old discount rate, this means they’ve actually not received enough to cover their future costs. Many will struggle to cover their care needs years before they reach their life expectancy. Not only has the victim had to deal with the heart-breaking reality of their life changing injury, they’ve also had to battle with the added stress and upset of money concerns and not knowing if their compensation will stretch.”

“This is where the recent changes will now make a significant difference. Going forward, claimants should receive a final settlement sum that will be enough to support them throughout the rest of their lives.

“It’s about time that claimants receive the right compensation sum they are entitled to. We are talking about seriously injured individuals who have long term needs for care, aids and equipment, adapted vehicles and houses, and so on. They are not about to receive ‘windfall damages’ that will lead to them being somehow over-compensated (as many defendant bodies and press reports have suggested). They will simply have a better chance now of meeting all their necessary costs and expenses over their lifetime. For too long the defendant party, which includes insurance companies and even the NHS, has been benefitting from the previous discount rate that didn’t reflect reality. It’s the claimant who has been losing out and this simply couldn’t go on.”