The discount rate, which is set by the Lord Chancellor in England and the Lord Advocate in Scotland, is a sum applied to cases where people have been awarded lump sum compensation for future losses (eg loss of earnings) after an accident. The figure has been set at 2.5 per cent for over 15 years but has now been changed to minus 0.75 per cent.
Insurers have cried foul, but in reality change has been on the agenda for a number of years. The discount rate had not been reviewed since 2001 and in the 16 years since then the rate of return on low or no-risk investment has not matched the discount rate applied. For almost a decade injured people have been out-of-pocket, hence the reason pressure has been mounting on the government to change the rate.
Insurers have been quick to signal that this will lead to increased insurance premiums and issued profit warnings, but let’s focus on the human beings who receive compensation when their life is irrevocably damaged through no fault of their own.
The discount rate has allowed insurers to make millions in extra profits throughout the past ten years at the expense of injured people. The Lord Chancellor’s admission that minus 0.75 per cent was “the only legally acceptable rate” she could set indicates as much.
In a climate where personal injury victims have had their rights and protections challenged, this marks a rare win.
l Scott Whyte is managing director of Watermans Accident Claims and Care