26 July 2017Print This Post

Discount rate should be not be more than 1%, insurers say

Damages “increasing significantly” after discount rate cut

Most insurers believe the personal injury discount rate should not be increased above 1%, according to a poll by City firm BLM.

Partner Antony French told a webinar hosted by the firm, which specialises in insurance work, that damages awards of over £10m had become “common” after the cutting of the discount rate from 2.5% to -0.75% in February.

With around 70 insurance representatives taking part in the webinar, 60% said they thought the discount rate should be increased to between 0% and 1%.

Almost a third (31%) said they thought it should be increased to between 1% and 2%, while only 2% believed it should be increased from the current level to above 2%.

A small group (7%) said the rate should not be increased above 0%, and could be cut to as low as -1%.

Mr French said it was “undoubtedly the case that damages were increasing significantly” and the firm regularly saw damages schedules “in excess of £20m”.

However he said that not at all cases heading for trial would see damages calculated according to a discount rate of -0.75% and in some cases claimants had settled a case at a rate of 1% because liability was not entirely certain.

He said contributory negligence could also be used by insurers as a lever to obtain more favourable discount rates.

Alistair Kinley, director of policy and government affairs at BLM, said the Ministry of Justice was due to make an announcement about the rate on 3 August, but this deadline “could slip”.

Mr Kinley predicted that the measure would be included in the Civil Liability Bill, which is set to implement the government’s whiplash reforms.

He said the bill needed to be “done and dusted” fairly to avoid being caught up in the “log jam of Brexit legislation” before we left the EU in March 2019. If the bill could get through Parliament in the autumn – and he said it might have a “rocky passage” given the small size of the government majority – it could be implemented in October 2018.

Mr Kinley added: “A really key aspect is the underlying investment assumptions for damages.

“While we now have an indication of where our audience believes the rate will settle, what will be interesting to learn more about is whether the government is considering new benchmark investment assumptions, and what effect those would have on the discount rate.”

By Nick Hilborne

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