Reforming the Calculation of Personal Injury Compensation (E, S, W)
Changes to the way compensation payments made to victims who suffer life-changing injuries are calculated have been proposed by the Ministry of Justice after changes made earlier this year under the existing system* threatened to send the cost of insurance cover soaring for motorists and the NHS Litigation Authority.
The changes relate mainly to the calculation of the percentage known as the ‘discount rate’, which is used to adjust victims’ compensation awards according to the amount they can expect to earn by investing them. The aim is that they should remain in the same financial position as if they not been injured.
‘The personal injury discount rate: how it should be set in future’ proposes draft legislation setting the rate by reference to ‘low risk’ investments, rather than ‘very low risk’ as at present. According to the government, the evidence suggests this better reflects the actual investment habits of claimants.
The rate would also be reviewed at least every three years, with an independent panel of experts established to advise the Lord Chancellor.
Based on currently available information, government calculates that if the new system were applied today, the rate ‘might’ be in the region of 0% to 1%.
Under the current system, the discount rate was reduced in March from +2.5% to -0.75%, which the insurer, LV=, estimates will increase the lump sum paid to a 25-year-old awarded £100,000 a year for brain damage from £3.1 million to £8 million.
Other estimates of additional, unintended costs include
- £1bn for the NHS Litigation Authority
- up to £1,000 per annum for the cover of 18-22 year old motorists
- up £300 per annum for drivers aged 65 and over
- £50-75 per annum on average for motorists across the board
* ‘Setting the Personal Injury Discount Rate’ (CPA News, 4 April 2017).