It is essential that this ’does not turn into a cost saving exercise that benefits the balance sheet of compensators’, says executive director
The Ministry of Justice (MoJ) yesterday (17 January 2023) launched an open consultation on proposed amendments to the personal injury discount rate (PIDR).
In the consultation, the ministry has proposed that PIDR could be changed to a dual or multiple rate system to more accurately reflect the size and duration of damages awarded.
Historically, there has been a single discount rate used for all cases, with criticisms of this system suggesting that this can result in unfairness to claimants.
The PIDR is a rating applied to the way lump sum compensation is calculated for significant personal injury cases – it is based on the premise that a claimant receiving a lump sum following a serious or life changing injury would have the opportunity to invest those funds and receive a return on that investment to provide income, which could in turn be used to pay for future care.
A lower PIDR means that less money is discounted from a claimant’s lump sum – the higher the PIDR, the smaller the lump sum payable.
In practice, the principle in law requires that any claimant awarded damages in a personal injury claim should receive compensation intended to provide them with “full and fair financial compensation for all the expected losses and costs caused by their injuries”.
In July 2019, following a full review of the PIDR, the then Lord Chancellor set a new rate of -0.25%.
The next review of the rate is planned for 2024 and the current consultation seeks views on whether a dual or multiple rate system would be more fair for consumers, with the view to potentially implementing a new system next year.
Potential impacts
Amending the PIDR so that it is set at two or more rates would potentially improve fairness for claimants whose awards are only expected to last for relatively short periods of time – who are more exposed to investment risk and thus potentially less able to recoup any losses.
The Ministry of Justice’s consultation document suggested that it may be fairer for claimants to bear different levels of investment risk for different heads of loss.
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A dual/multiple system could function in a stepped fashion, where claimants were placed on either a short or long term rate, or could work via a switched method, where short term rates apply initially but are switched if a certain duration is passed.
In Jersey, for example, the PIDR is set at 0.5% for claims not exceeding a duration of 20 years and at 1.8% if longer.
Despite potential advantages, the consultation states that one advantage of the single rate system is greater simplicity and transparency – it questions respondents on whether they believe a dual or multiple rate system would be too complicated to operate.
First and foremost
Matthew Maxwell Scott, executive director at the Association of Consumer Support Organisations (ACSO), said: “It is understandable that ministers may want to apply dual or multiple rates – as exist in some other international jurisdictions – to reflect the nature and duration of the most serious injuries.
“However, it is essential that the needs of catastrophically injured people are first and foremost in ministers’ minds and that this does not turn into a cost saving exercise that benefits the balance sheet of compensators.
“The review of the discount rate as a whole, starting in July 2024, is looming large on the horizon – those involved in civil justice must take account of the risk of delayed settlements in anticipation of a significant change in the rate following the statutory review.”
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