The personal injury discount rate in Northern Ireland currently stands at 2.5%
Specialist law firm Horwich Farrelly has issued a warning about the risks that the insurance market in Northern Ireland faces with the proposed discount rate changes.
Matthew Fitzpatrick, partner and head of Northern Ireland at Horwich Farrelly, believes this could lead to substantial reserve re-calculations and increased motor premiums.
Earlier this month, Northern Ireland’s justice minister Naomi Long announced that she had asked officials to undertake a statutory consultation to consider the personal injury discount rate, which currently stands at 2.5%. The consultation, which will be conducted with the Government Actuary’s Department and the Department of Finance, will consider a proposed change from 2.5% to minus 1.75%.
The requested consultation of the discount rate is required under the Damages Act 1996.
Fitzpatrick, said: “With the backlog in legislation in Stormont, there is likely to be sufficient time for a change in legislation if the industry can influence a change in approach to reflect the changes already made in the rest of the UK.
“The discount rate in NI has not been changed since 2001. Unlike in England and Wales and Scotland, where the methodology for revision of the rate has changed to take into consideration a more realistic approach, the 1996 act provides for a considerably lower risk approach.
“However, with interest rate cuts, the prospect of a global recession and a myriad of other Covid-19 issues, a negative discount rate may well be viewed as a certainty by many.”
Meanwhile Fitzpatrick added that as the discount rate employed will be that at the date of trial, rather than the date of accident, the impact of such a change will require substantial reserve re-calculations.
This is because the potential increase in the cost of claims may put insurers off writing policies in Northern Ireland which, in turn, could have the unintended consequence of increasing premiums for all motorists, he said.
“Whilst we all want to ensure that those injured are fairly and appropriately compensated, we fear that the proposed rate may ultimately lead to pricing some consumers out of purchasing motor insurance, shifting the burden to those who have paid their premium,” Fitzpatrick added.
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