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Insurance lawyers warn of discount rate impact in public purse

FOIL President David Johnson - "no evidence" that discount rate

Insurance lawyers today welcomed news that the Government will address the issue of variations in the Discount Rate, but warned against any alteration which could hit the public purse.

David Johnson, the President of the Forum of Insurance Lawyers (FOIL) said the body welcomed that the Government is taking active steps towards addressing the issue of variation of the Discount Rate but exercising caution and care in its approach.

“There has for too long been uncertainty around whether or not the discount rate will be varied and, if so, how. Parties to personal injury claims and their legal advisors need to know where they stand and it is important that the issue is resolved.”

FOIL President David Johnson - "no evidence" that discount rate has been set too high"

FOIL President David Johnson – “no evidence” that discount rate has been set too high”

Mr Johnson claimed that a variation of the discount rate will impact “not just on injured individuals pursuing compensation awards but also wider society”, through what he referred to as “the knock on effect that compensation payments have on UK insurance premiums, as well as the public purse when an organisation such as the NHS is being sued.

“It is perfectly correct that the Government should strive to ensure that claimants are not left under compensated when pursuing clinical negligence and personal injury claims through the Courts but the Government must be equally diligent in ensuring that such individuals are not unjustly overcompensated, at the expenses of the public at large.”

He added that any suggestion that the discount rate results in claimants seeing their damages reduced unfairly presumes that it has been set too high and that claimants habitually experience a shortfall in compensation awards intended to cover future expenses. “The reality is that there is no evidence to indicate that that is the case.”

“As the questionnaire issued by the Government in 2012 reflects, the issue of at what level to set the discount rate is inherently complicated.  In light of the far reaching consequences that would result in any variation of the discount rate, it is entirely appropriate that the Government should call for a detailed analysis of the realities surrounding the investment of damages awards, before it decides whether to vary the rate and, if so, how.  FOIL believes that the focus should be how damages awards should be invested and what rates of return can be derived from the same where Claimants are properly advised.  That analysis should in turn be by reference to a reliable and independent body of evidence, extrapolated from a suitably sizeable and representative pool of data, underpinning the Government’s decision.”

Commentary

The ‘on-off’ status of the discount rate review is now longer in the tooth than many stories affecting the insurance industry. Our last report on it was in 2011 when there appeared to be some movement likely, especially given we were then only one year into the new Con/Lib coalition. However it seems that the delay has been to insurers’ benefit and few would bet against the defendant side after their recent showings as star lobbyists in the fight against the compensation culture.

About Ralph Savage (138 Articles)
Insurance and legal journalist Ralph Savage has written extensively for the financial and professional services sectors, most notably as News Editor of Post Magazine. He ghost writes regularly on behalf of FTSE 250 CEOs, leading counsel and senior professionals including solicitors, insurers, accountants and brokers.

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