The Association of British Insurers (ABI) has launched a judicial review of the Lord Chancellor’s decision to announce any change to the discount rate for personal injury damages next month, arguing that the government has not completed the underlying work needed to reach a conclusion.
Without changing the methodology behind setting the rate, the Ministry of Justice’s (MoJ) review would take a flawed approach based on “a fundamental misunderstanding of how people invest their compensation”, the ABI said.
The Association of Personal Injury Lawyers (APIL) has branded the move as “worthy of Scrooge himself”.
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.
The rate has been 2.5% since 2001, largely by reference to yields from index-linked government gilts (ILGS). 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 in August 2012 and February 2013 the MoJ issued two consultation papers on the discount rate – first considering the methodology for setting the rate, and then seeking views on the legal framework.
In 2014, an expert panel was appointed to provide the Lord Chancellor with investment advice.
Nothing had happened subsequently until earlier this month, in the face of a threatened judicial review by APIL, the MoJ said the Lord Chancellor would finally announce her decision on whether to change the discount rate by 31 January 2017.
The ABI complains that none of the findings of any of this work has been published, which it said was a breach of Cabinet Office guidelines and promises made at the time.
Director-general Huw Evans said: “The discount rate has a significant impact on the amounts paid out by both insurers and public sector bodies like the NHS. This calculation must therefore reflect the type of long-term investment behaviour we know claimants actually use.
“Despite two public consultations over three years ago and convening an expert panel, the MoJ has not yet shared any findings. Instead it is now trying to rush out a new rate for the first time in 15 years at a time of great uncertainty in the investment markets.
“To proceed in these circumstances is reckless and wrong. Insurers are open to a proper dialogue on how to reform the system but this is not the way to do it.”
The ABI described the UK as “an outlier internationally” in its reliance on a single measure when determining the discount rate rather than a formula similar to one used by a “real-life investor”.
APIL president Neil Sugarman responded: “The ABI is literally saying that it does not want to give catastrophically injured people the full support and funding they need, deserve and to which they are entitled…
“Need I remind anybody that compensation paid to an injured person who may never walk, work, or be able to feed themselves again, is not a windfall? They absolutely should not have to make risky investments to eke out their compensation.
“The ABI’s legal challenge is a tactic to stall the result of the review so that the industry can continue to squeeze whatever it can from injured people for as long as possible.
“To suggest that the Lord Chancellor has not been thorough in the review is beyond ludicrous. It has taken three years, two major public consultations, a hefty research paper, and a panel of specially selected experts to make this decision and the only right decision is for the rate to be substantially reduced.”
Meanwhile, the National Audit Office yesterday launched a probe into the rising cost of clinical negligence claims. It will examine whether the Department of Health and the NHS Litigation Authority (NHSLA) “understand what is causing the increase in clinical negligence costs, and evaluate their efforts to manage and reduce the costs associated with clinical negligence claims”.
It added: “We will also assess the NHSLA’s contribution to helping trusts to reduce the number of negligence claims they receive by sharing learning about past incidents and by encouraging wider forms of redress for affected patients.”
The NHSLA described it as a “value for money” study, which it said was “a recognised way to routinely examine major areas of government expenditure”. The statement said the NHSLA welcomed the study and “the independent perspective” that the National Audit Office would provide.