The Association of Personal Injury Lawyers (APIL) has branded the insurance industry’s legal challenge of the Lord Chancellor’s decision to review the discount rate for personal injury claims as being “worthy of Scrooge himself”.
The Association of British Insurers (ABI) is challenging the decision as it says it is based on a fundamental misunderstanding of how people invest their compensation. The Lord Chancellor Liz Truss announced on 7 December that a review of the discount rate (which is currently set at 2.5%) would be complete by 31 January 2017. In her statement the Lord Chancellor conceded that any change could have “profound financial consequences”.
With the discount rate measured against gross redemption yields of index-linked Government gilts, the ABI says that the UK is an international outlier as no other nations in Europe use the same “flawed methodology”.
APIL said that the review was long overdue however, as the rate had last been reviewed and set in 2001. APIL added that this was done when interest rates were much higher, which means that too much compensation has been deducted from seriously injured people, to the tune of millions of pounds, for years.
“The ABI is literally saying that it does not want to give catastrophically injured people the full support and funding they need, deserve and to which they are entitled,” said APIL’s president Neil Sugarman.
“A severely disabled child, for example, injured in a car crash caused by an insurer’s client will currently have his or her compensation reduced by so much that there is a real risk the money will run out and his life-long needs will not be met. The money will remain instead in the pocket of the insurer who has already reaped the premiums while refusing to pay what is due,” he explained.
“Need I remind anybody that compensation paid to an injured person who may never walk, work, or be able to feed themselves again, is not a windfall? They absolutely should not have to make risky investments to eke out their compensation.
“The ABI’s legal challenge is a tactic to stall the result of the review so that the industry can continue to squeeze whatever it can from injured people for as long as possible.”
He added that to suggest that the Lord Chancellor has not been thorough in the review was “beyond ludicrous”.
“It has taken three years, two major public consultations, a hefty research paper, and a panel of specially selected experts to make this decision and the only right decision is for the rate to be substantially reduced,” he said.
APIL has calculated that the correct rate should be between -0.5% and -1.0%, based on gilt market levels on 31 October.