More reaction to discount rate change

Reaction to yesterday’s change to the personal injury discount rate is continuing to pour in, with insurers, law firms, trade groups and other organisations split on whether the UK government went far enough.

Justice minister and lord chancellor David Gauke set the discount rate at -0.25%. It was previously set at -0.75 in 2017.

Read all of the reaction below.

Insurer and insurance industry group reaction

Association of British Insurers

Huw Evans, director general of the Association of British Insurers, said: “This is a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money. A negative rate maintains the fiction that a claimant and their representatives will knowingly choose to invest their damages in a way that would guarantee losing them money.”

“This will remain the lowest discount rate in the Western world, leaving England and Wales an international outlier at a time when we need to boost our attraction to international capital.”

International Underwriting Association

Dave Matcham, chief executive of the International Underwriting Association, said: “The new methodology for calculating the personal injury discount rate promised to introduce a much fairer and more realistic assessment of investment strategies. This was widely expected to result in a figure of between zero and 1%, which indeed, was the indication given by former lord chancellor David Liddington in a statement to the House of Commons in September 2017, when the process of reform began.”

“We have always supported a rate which fairly reflects the ‘100% compensation principle’, ensuring claimants are put in neither a lesser or more advantageous position than any ordinarily prudent investor favouring a low-risk investment approach. The government’s statement today, however, indicates that a rate of minus 0.25% leaves a claimant twice as likely to be over-compensated than under-compensated.”

“The likely effect will be to drive up the cost of insurance for policyholders across the market.”

LV=

Martin Milliner, LV= General Insurance claims director, said: “LV= has always been committed to providing the fairest possible settlements to our most seriously injured road users. Today’s announcement whist replacing the absurd and fiscally irresponsible decision to cut the Ogden Discount Rate to -0.75%, doesn’t in our view go far enough.”

“At this level we believe that claimants will remain over-compensated, thus undermining the common law principle of 100% compensation. This means that uncertainty will remain for claimants, lawyers and compensators alike as this rate will be surely challenged once again at the next review in five years’ time.”

AXA Insurance

David Williams, managing director of underwriting and technical services at AXA Insurance, said: “The lord chancellor’s announcement today is disappointing to say the least and doesn’t provide the equality of compensation that we would have hoped for and expected.”

“A negative rate simply does not reflect the economic reality of the investment opportunities for those receiving lump sum payments and, whilst reform was certainly needed to ensure fair compensation for accident victims, the rate announced today causes other problems.”

“-0.25% is below the level that most commentators were expecting, below the rate insurers have been using for pricing, and below the level most claims have been settling at whilst we awaited the announcement.”

“The new rate sadly may stop the reduction in motor insurance premiums we have seen in recent months, as well as placing a huge burden on the NHS.”

Allianz Insurance

Simon McGinn, general manager for commercial and personal at Allianz Insurance, said: “We believe providing seriously injured people with a fair level of compensation is the right thing to do but the insurance industry is currently overcompensating. While today’s announcement has signified a move in the right direction, unfortunately the new rate of -0.25% does not go far enough. An opportunity has been missed to further tackle the increased cost of settling personal injury claims, which ultimately contributes to rising customer premiums.”

MoneySuperMarket

Nigel Pocklington, chief commercial officer at MoneySuperMarket, said: “While today’s announcement from the Ministry of Justice has delivered a slightly lower rise than anticipated, making it potentially good news for personal injury victims who can expect to receive larger lump sum payments, it remains to be seen what the future holds for consumers in terms of the price of their car insurance.”

“Following the government’s original revision to the Ogden rate in 2017, when the rate went from 2.5% to -0.75%, the knock-on effect was significant premium increases across the market but there’s no guarantee there will be significant change again.”

“Insurers will want to take time to digest the implications and decide how to react. It could also prove a long road, as the industry is likely to challenge the government’s decision.”

“In the meantime, the good news for consumers is there could still be competitive deals to be had as prices fluctuate. That means it’s more crucial than ever to shop around when your premium is up for renewal, with upwards of £200 in annual savings up for grabs.”

Law firm, barristers and legal sector group reaction

BLM

Andrew Hibbert, partner and head of the catastrophic injury team at BLM, said: “The newly-announced rate was intended to be a more realistic and evidence-based way of valuing injury claims with significant future losses. We haven’t yet seen the reasons for the decision, but the new -0.25% rate is a disappointment to us and our insurance clients since we’ve very recently been settling cases at 0.5% and above—we’d hoped the new rate would be around that number.”

“I am doubtful that this new rate removes the risk of over-compensation which the government itself said was significant at the previous rate of -0.75%. The more positive aspect is that the setting of the discount rate should at least remove uncertainties associated with resolving claims and should help bring cases to a close more quickly.”

Exchange Chambers

Bill Braithwaite QC, head of Exchange Chambers, said: “This is a really sensible result. For many months, claimants have been fearing and even expecting a disaster in the way their compensation claims are calculated. Personal injury lawyers have been at least as pessimistic, thinking that the government wouldn’t be able to reach the right conclusion.”

“Of course, the Association of British Insurers will kick up a fuss, saying that claimants don’t need the money, or that they won’t spend it, or that our premiums will go up, but when you analyse the arguments logically and dispassionately, all their arguments fall to the ground—and even the government can see that.”

DWF

Charles Ashmore, head of catastrophic injury at DWF, said: “The decision will be seen as hugely disappointing by insurers. While it may not be a complete surprise in light of developments in Scotland during the passage of the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 where the predicted rate has been in the region of -0.25%, it will be considered to be at the very lowest end of expectations and at a level which many believe will still result in overcompensation to claimants.”

“A dual rate was apparently considered but ruled out at this stage due to insufficient evidence, though it has not been ruled out in future and there will be further consultation.”

“The indications are that the next review will take place ‘within 5 years’ so for the immediately foreseeable future all parties have certainty, even if they do not currently have the multipliers available—new versions of the Ogden tables will no doubt be available shortly.”

Clyde & Co

Kate Duffy, partner at Clyde & Co, said: “This news has wiped the smile off the face of the many insurance actuaries still celebrating England’s cricket win yesterday [14 July]. -0.25% is a poor result. Yes, it’s better than the proposed -0.75%, but it remains woefully inadequate. From the industry’s perspective, it tips the odds too much in favour of claimants at the expense of insurance-buying motorists and businesses, who will inevitably have to dig deeper for insurance costs.”

Forum of Insurance Lawyers

Tony Cawley, member of the Forum of Insurance Lawyers and partner at Clyde & Co, said: “It is very disappointing that the numerous representations made by FOIL and the insurance industry have failed to be taken into consideration. Although the lord chancellor refers to the new statutory test in the announcement, FOIL does not believe that the new rate reflects how claimants actually invest their damages. Today’s new confirmed rate will be particularly concerning to the insurance market generally but also to many public bodies.”

Association of Consumer Support Organisations

Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, said: “We welcome the change in policy that ensures levels of compensation for catastrophically injured people are now subject to proper review. Since the financial crash, the discount rate for many years hugely favoured insurers at the expense of injured people.”

“The lord chancellor’s decision to set a -0.25% rate is a sober assessment of the facts, and regular reviews will ensure that the rate can be amended every five years to take account of interest rates, investment returns and other economic data.”

“It is of course vital that badly injured people get what the courts decide is due, and their funds are sufficient to enable them and their loved ones to get the best available care. In making his decision, the lord chancellor perhaps had in mind the risk of undersettlement bringing significant future problems, including the potential risk that the state has to step in after the compensation runs out.”

“The insurance industry is contracted to protect the public in the event of a serious injury, in return for which motor and many other insurances are compulsory. The discount rate must always reflect that contract, and meet the obligations of insurers to look after injured people, whatever the cost.”

Minster Law

Stuart Hanley, deputy head of Minister Law legal services, said: “We broadly welcome this humane decision by the lord chancellor, which will ensure that critically injured people are properly funded, and the principle of 100% compensation is maintained.”

“Although a revised upwards rate at -0.25% will reduce compensation payments (previously -0.75%) the new rate does reflect the fact that the government accepts it is a risky and costly business for claimants to invest their compensation successfully in order to fully fund the enormous changes in their lives following serious injury.”

“The revised rate also mirrors the likely outcome of the Damages Act in Scotland, where we understand the Scottish government is due to confirm a -0.25% rate, ensuring there is a level playing field across the UK.”

“In 2017, when Liz Truss MP, then Lord Chancellor, re-set the discount rate at -0.75%, she stated: ‘The law makes clear that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life.’”

“Striking the appropriate balance is of course a difficult task but, on balance we have always believed the system should support the injured person first and foremost, as that, in the end, is what we pay our insurance for.”

Weightmans

Dave Cottam, partner at Weightmans, said: “This is a missed opportunity for the government to curb the significant impact on premium payers and public bodies.”

“The decision doesn’t reflect the real-world choices of many claimants when it comes to investing lump-sum payments.”

“Throughout the consultation, there were suggestions that this would be considered in the chancellor’s methodology, and a change to a positive figure was widely anticipated.”

“In fact, many of the personal injury cases that have settled recently have been based on rates of between 0 and 1% in expectation of the new rate.”

“While the modest change is to be welcomed, by maintaining a negative rate for the next five years, the government has set the scene for many more very significant lump-sum awards at the expense of premium payers and public bodies.”

“We will also continue to see the vast majority of serious personal injury compensation awards settled on the basis of lump sums, rather than moving towards periodic payment orders (PPOs), which remove many of the inaccuracies inherent in the discount rate calculation.”

Hodge Jones & Allen

Peter Todd, partner at Hodge Jones & Allen, said: “We are delighted that the interests and need of victims of serious injuries have been protected despite sustained pressure from the insurance industry to increase the discount rate significantly. It is only right and proper that some of the most vulnerable people in our society receive the funds they need to ensure their long-term care.”

“Had the government caved into pressure from the insurance lobby it would have increased corporate profits at the expense of fair compensation that so many victims of serious injury need. The lord chancellor is to be commended for his decision.”

Thompsons Solicitors

Samantha Hemsley, national head of the serious injury and clinical negligence teams at Thompsons Solicitors, said: “The insurance industry’s reaction to government recognition that seriously injured people are risk averse and deserve full compensation is depressingly true to type. The insurers’ relentless drive for profit appears to render them incapable of the humanity required to stand in other people’s shoes.”

“Our seriously injured clients have been under compensated for years due to an unachievable rate of return, a fiction that has contributed to golden years of insurance company profit. Insurer outrage at an outcome that doesn’t, for once, go their way is Trumpian in its attempt to gloss over the past and set a false agenda for the future.”

“To portray a considered announcement, which seeks to achieve fairness to the most seriously injured whilst avoiding them falling back on the state when their inadequate funds run out, as somehow encouraging poor investment or leading to over compensation speaks volumes about how out of touch insurers are. That they have to pull out and wave around the taxpayer and premium cards yet again shows how bare their cupboard is when it comes to defending their excess.”

“The real answer is for insurers to use PPOs in settlements as that would make the level of the discount rate irrelevant. But, in case after case, where we propose it they refuse because finality, getting cases off their books, ranks above anything else.”

Mark Dugdale