New discount rates for personal injury claims: what does it mean for me?
The Lord Chancellor has announced a new discount rate for personal injury claims. Bob Beard, Litigation Executive in the Clinical Negligence and Personal Injury team at Coodes Solicitors, explains what the change means if you are seeking compensation following an accident.
The Government has announced that it is changing the personal discount rate, which calculates the amount of compensation people can receive following life changing injuries. The rate will change from minus 0.75 per cent to minus 0.25 per cent. The decision, which follows an extensive review, has proved controversial with insurers who have claimed that it will lead to an increase in insurance premiums to cover the cost on pay-outs.
If you are seeking compensation following an accident, you will undoubtedly hear about the discount rate. But, what is it and what does the change mean?
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What is the personal injury discount rate?
Sometimes referred to as the ‘Ogden rate’, the discount rate is used to calculate lump sum compensation awarded to people who have suffered life changing injuries as a result of an accident that wasn’t their fault. The final figure is adjusted using the discount rate to reflect the interest you can expect to earn by investing your payment. It is also used to reflect the effects of tax, expenses and inflation on these returns.
The calculation is complex, but perhaps the simplest way to explain it is that the rate aims to put people into the same financial position they would have been had they not had their accident. This includes addressing the loss of future earnings, if they are no longer able to work, as well as care costs.
The discount rate is calculated using the Ogden tables, which provide a series of calculations to generate the final amount of compensation to be awarded.
Of course, no one knows what financial position they would be in had they not had their accident, but the discount rate is the best tool we have to estimate that figure and provide fair compensation.
Why is the discount rate being changed?
Prior to the last rate of minus 0.75 per cent, the discount rate was set at 2.5 per cent in 2001. Despite cuts to interest rates, it remained unchanged for 16 years before being set at minus 0.75 per cent in 2017.
In its recent announcement, the Government states: “The current rate of minus 0.75% has led to concerns that claimants were being substantially over-compensated, increasing financial pressure on public services that have large personal injury liabilities.” However, most of us would agree that it is important that the discount rate should reflect the real loss of future income for people who have been unfortunate enough to suffer life-changing injuries.
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How will it affect my personal injury claim?
The change in the discount rate came into effect in England and Wales on 5th August 2019. It reduces the pay-outs following personal injury or clinical negligence claims with future damages awards. However, the outcome is better than we had feared. The change is less than we had expected as the insurance sector had predicted the introduction of a 0 per cent discount rate.
The discount rate involves a complex set of calculations, so no two cases will be affected in the same way. The discount rate is used to reflect the future loss of earnings, so the change will only affect people making claims that involve future damages awards.
Here at Coodes we remain absolutely committed to helping all our clients get the compensation they deserve.