Personal Injuries Compensation

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What a change to the Discount Rate means for you?

In February 2017 the Lord Chancellor, Liz Truss, made an important announcement in respect of the Discount Rate, which is used to calculate the amount of compensation to be paid to seriously injured individuals.

As settlement of a personal injury is designed to provide financial indemnity over a number of years, the amount allocated towards loss of earnings and future cost of care can be high. As a result, an allowance is made by the courts to reflect the fact that the claimant will be able to invest the award and earn interest on that investment. The settlement is therefore ‘discounted’ by the amount of interest the claimant can expect to earn over time.

The Discount Rate has changed from 2.5% to -0.75%. This means that, rather than any lump sum award being discounted to allow for a 2.5% investment return, the indemnity settlement will be increased. For example, an award made to a 27 year old female with a serious life-changing injury will move from £6.5m under the old Discount Rate to approximately £14m under the new one.

The rate change is causing such a financial impact on insurers it is impossible for them to absorb the cost, and as a result many are already applying price increases. An individual or company with a policy which covers bodily injury, including Motor, Public/Products Liability and Employers’ Liability are likely to witness a premium increase at their next renewal.

The change highlights the importance of working with a broker whose clients’ needs are paramount. At Hugh J Boswell, we are committed to ensuring our clients receive the most appropriate insurance programme to suit their business. Our independence gives us access to a wide panel of insurance partners to ensure the cover is always competitively priced.