On 27th February 2017, Lord Chancellor Elizabeth Truss announced a new discount rate of -0.75% for personal injury awards, a drastic change from the current 2.5% (adopted in 2001).  This new rate comes into effect 20th March 2017.

The Discount Rate
In personal injury cases, the courts and insurance providers use a discount rate to determine the present value of the compensation that needs to be paid to an injured individual (claimant). The objective is to make sure a severely injured person has the necessary financial security to provide for their care and loss of earnings. The discount rate is used to calculate the amount of compensation they receive to reflect the return they will earn when that money is invested.

The Lord Chancellor’s Decision
The decision has proven controversial because it has changed the discount rate from 2.5 per cent (adopted in 2001) to -0.75 per cent. This change is drastic because it effectively requires any party paying a claim to increase – rather than discount – the sum that is provided to the claimant.

The Lord Chancellor justified this decision by citing previous case law establishing that the purpose of awards for personal injury victims is to put the injured party in the financial position that he or she would have been in if there had been no injury.

The Impact
The reduction means that those suffering from serious injuries will receive significantly higher compensation payments than before.

The Association of British Insurers has estimated that it will directly increase motor and liability premiums for millions of UK drivers and businesses, including 36 million individual and commercial motor policies.

PricewaterhouseCoopers warned that the average annual comprehensive motor premium will rise by up to £75 and young drivers could see increases up to £1,000. Industry experts have warned that the decision could land the already burdened NHS with an additional annual £1 billion bill.

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Published: 02 March 2017