Recent proposals for dual or multiple personal injury discount rates have sparked significant concern.
- APIL warns that these changes could increase pressure on severely injured individuals.
- The Ministry of Justice has launched a consultation on altering discount rates based on compensation duration.
- John McQuater emphasises that injured individuals are risk-averse and not typical investors.
- The proposed reforms might result in additional financial burdens and heightened risk for injured claimants.
Recent proposals to implement a dual or multiple personal injury discount rate have ignited significant debate and concern among legal experts, particularly the Association of Personal Injury Lawyers (APIL). The crux of the matter lies in the potential impact these changes could have on catastrophically injured individuals, as highlighted in APIL’s response to the Ministry of Justice’s (MoJ) consultation in April 2023.
The proposed reform suggests varying the discount rates according to the length of time compensation must last, an approach that APIL believes could unfairly burden injured individuals. APIL President John McQuater articulated these concerns by stating that injured people, unlike conventional investors, are typically risk-averse. He pointed out that expecting better returns due to the willingness to invest over extended periods fails to consider these individuals’ unique circumstances.
Mr McQuater further criticised the anticipated dual discount rate for potentially pressurising claimants with longer life expectancies to take greater financial risks. This, he argues, is contrary to their preferences and needs, adding that the reform may unjustly benefit insurers by offering them a “savings windfall.”
According to government insights, currently, one-third of claimants settling under the existing single rate are unable to completely offset their financial losses. This existing shortfall is exacerbated by ongoing economic instability and high inflation, which further amplifies the risk of under-compensation enduringly affecting claimants under the new proposal.
Another key point raised by McQuater includes the underutilisation of periodical payment orders (PPOs), which are designed to mitigate the financial risks faced by injured individuals investing their compensation. He cited a 2020 APIL survey revealing that 88 per cent of members found it challenging to secure PPOs from insurers, despite a significant preference among victims for such compensation structures. This reflects inefficiencies that could be aggravated by the proposed discount rate changes.
The proposed discount rate reforms risk exacerbating financial challenges for injured claimants, with APIL urging careful reconsideration.
