New Civil Liability Bill – what does it mean for the seriously injured?
It is now more than one year since the introduction of one of the most significant changes to personal injury compensation in recent years.
In March 2017, the Scottish and UK Government introduced a change to the ‘Discount Rate’ to help protect the most seriously injured.
What does this mean?
The discount rate for future losses was lowered from 2.5% to -0.75%. The discount rate is a percentage discount applied to lump sum compensation awards to reflect the amount the injured victim could earn from investing their compensation. The rate of 2.5% had been in place from 2001 until it was changed in March 2017.
The change was intended to ensure the most seriously injured were properly compensated for their losses. Since the financial crisis, rates of return on investment have not been as high as 2.5%.
Last month, the UK government confirmed its plans to reform the way compensation for future losses in personal injuries is calculated. It is only a proposal at this stage and no change has yet been introduced.
According to the UK government, The Civil Liability Bill is intended to modernise the way the discount rate is set. It proposes that the discount rate is set by reference to rates of return on a ‘low risk’, instead of ‘very low’ risk. Essentially this means those most seriously injured will be awarded less.
The Bill also proposes that the discount rate is reviewed every 3 years with an expert panel giving advice to the Lord Chancellor on future rate changes.
One of the main arguments used in favour of changing it to ‘low risk’ is that the current methodology of ‘very low’ risk does not reflect the “real world” behaviour of claimants investing their damages. This is in light of backlash from insurers that the change to - 0.75% results in overcompensation and would result in increased premiums for the public.
Seriously injured under compensated for years
In my view, the change to -0.75% has not been in place for enough time to demonstrate properly that there is overcompensation. Any evidence of claimant behaviour before the change is of limited value. For years, claimants had their compensation reduced by 2.5% when they were receiving returns on investments much lower than this figure. This fact has been acknowledged by both the Scottish and UK Government when they changed the rate a year ago.
Prior to the change, claimants were left with no alternative but to invest in higher risk investments in an attempt to counteract the effect of a discount rate which was too high. Given this, I am of the view it is unfair to compare claimant behaviour before the change to minus 0.75%. As highlighted previously by Courts, the most vulnerable should not be faced with having to take risk with their investments to obtain the return they needed to ensure their compensation did not run out.
The changes proposed in the Civil Liability Bill only affect claims in England & Wales. It does not apply to Scotland. However, the Scottish Government announced in 2017 that they plan to introduce a Damages Bill in 2017-2018 which would seek to amend the law on the discount rate in Scotland.
Importance of compensation for seriously injured
At Digby Brown, we act on a daily basis for those who have been significantly injured by accidents. We see first-hand the impact life changing accidents have on people and know how important it is that compensation is obtained to ensure that, for example care packages, are properly funded and available for those in need.
We have concerns that changes to the methodology for calculating the discount rate without proper evidence of overcompensation risks under-compensating those most seriously injured.
Those who are injured should be central in any consideration of reform of the discount rate to ensure that they are fully and properly compensated. Compensation is intended to put an injured person into the position they would have been before the accident. We know that for many clients with spinal cord injury or brain injury that any compensation awarded will never do that, but it can help them have a better quality of life without having to be exposed to greater risk on investments.
Kelly Christie was left with a severe brain injury after a road traffic accident - find out how compensation secured by our serious injury lawyers helped her move on from the accident.
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