Further Insurance Increases
Posted: 27 Feb 2017, 11:31
There has been a change in the discount rate for personal injury cases.
When we look at a claim for future losses, we calculate how much that claim is worth for life or for a limited period.
Say if you need care and assistance for the rest of your life. We do a calculation then apply a discount of 2.5% This is on the basis that you get lump sum of cash in your hand, so you can invest it and gain interest on that lump sum.
This morning they changed the discount rate from +2.5% to -0.75% (so we now do the sum then add .75% to it).
The impact means that the insurance companies will now have to pay out more on large value cases. So that means we the customer will be bearing the brunt.
Under the Damages Act 1996, I, as Lord Chancellor, have the power to set a discount rate which courts must consider when awarding compensation for future financial losses in the form of a lump sum in personal injury cases.
The current legal framework makes clear that claimants must be treated as risk averse investors, reflecting the fact that they may be financially dependent on this lump sum, often for long periods or the duration of their life.
The discount rate was last set in 2001, when the then-Lord Chancellor, Lord Irvine of Lairg, set the rate at 2.5%. This was based on a three year average of real yields on Index Linked Gilts. Since 2001, the real yields on Index Linked Gilts has fallen, so I have decided to take action.
Having completed the process of statutory consultation, I am satisfied that the rate should be based on a three year average of real returns on Index Linked Gilts. Therefore I am setting it at minus 0.75%. A full statement of reasons, explaining how I have decided upon this rate, will be placed in the Libraries of both Houses of Parliament. The Statutory Instrument to effect this change will be laid today, and will become effective on 20 March 2017.
When we look at a claim for future losses, we calculate how much that claim is worth for life or for a limited period.
Say if you need care and assistance for the rest of your life. We do a calculation then apply a discount of 2.5% This is on the basis that you get lump sum of cash in your hand, so you can invest it and gain interest on that lump sum.
This morning they changed the discount rate from +2.5% to -0.75% (so we now do the sum then add .75% to it).
The impact means that the insurance companies will now have to pay out more on large value cases. So that means we the customer will be bearing the brunt.
Under the Damages Act 1996, I, as Lord Chancellor, have the power to set a discount rate which courts must consider when awarding compensation for future financial losses in the form of a lump sum in personal injury cases.
The current legal framework makes clear that claimants must be treated as risk averse investors, reflecting the fact that they may be financially dependent on this lump sum, often for long periods or the duration of their life.
The discount rate was last set in 2001, when the then-Lord Chancellor, Lord Irvine of Lairg, set the rate at 2.5%. This was based on a three year average of real yields on Index Linked Gilts. Since 2001, the real yields on Index Linked Gilts has fallen, so I have decided to take action.
Having completed the process of statutory consultation, I am satisfied that the rate should be based on a three year average of real returns on Index Linked Gilts. Therefore I am setting it at minus 0.75%. A full statement of reasons, explaining how I have decided upon this rate, will be placed in the Libraries of both Houses of Parliament. The Statutory Instrument to effect this change will be laid today, and will become effective on 20 March 2017.