27 January 2017Print This Post

ABI’s efforts to stop discount rate announcement come to an end – but there will be a delay

Dalton: significant change to rate would be reckless and wrong

The Association of British Insurers (ABI) legal bid to stop the Lord Chancellor announcing any changes to the discount rate has come to an end, it confirmed yesterday.

However, the Ministry of Justice said this morning that the decision would not come down on 31 January, as had been promised.

Having last week been denied permission to apply for judicial review, it has now been refused permission to appeal that decision, as well as an interim injunction to stop the announcement.

But in a statement to the London Stock Exchange this morning, the Ministry of Justice said: “On 7 December, the Lord Chancellor informed the market that the result of her review of the discount rate for personal injury claims would be announced by 31 January, following consultation.

“This has taken longer than anticipated, so it is not yet possible to make an announcement. However, the Lord Chancellor remains committed to making an announcement in February.”

James Dalton, director of general insurance policy at the ABI, said yesterday, following the appeal decision: “We are disappointed to have lost our appeal today on the discount rate. We will, however, continue to make very strong representations to the government that a significant change in the discount rate now would be reckless and wrong, hurting consumers, business and the NHS.

“While it is vital that claimants get the compensation they are entitled to, this has to be done on the right basis.”

The insurers brought the judicial review in the wake of the Ministry of Justice revealing last month – in response to judicial review proceedings started by the Association of Personal Injury Lawyers (APIL) – that the outcome would be known by the end of January.

The ABI argued that the government has not completed the underlying work needed to reach a conclusion, and had not shared any of the findings of two public consultations conducted in 2012 and 2013, or of the expert panel it convened.

It said that without changing the methodology behind setting the rate, the Ministry of Justice review would take a flawed approach based on “a fundamental misunderstanding of how people invest their compensation”.

The discount rate is the rate of return to be expected from the investment of a lump sum award of personal injury damages for future loss, and applied to the lump sum to ensure a claimant is not over-compensated.

Insurers are clearly worried that the rate is going to be reduced next week, which would increase the payouts they have to make. It has been 2.5% since 2001, largely by reference to yields from index-linked government gilts. This is on the basis that claimants would seek low-risk investments.

However, the low rate of return prompted calls for it to be changed and APIL, which was an interested party in the ABI’s case, said its calculations put the correct rate at between -0.5% and -1% based on gilt markets on 31 October 2016.

Insurers argue that in reality claimants invest in mixed portfolios that generate higher yields than gilts.

By Neil Rose


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