Discount rate benchmark to switch from very low risk to low risk investments: expected to be recalculated to between 0-1%

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The Government is set to change the way the Discount Rate is to be calculated, by benchmarking it against low risk investment returns, rather than “very low risk” ones, meaning that the rate would be in the region of 0 to 1% if it were reset today.

In a statement, Lord Chancellor David Lidington has said that the rate will also be reviewed at least every three years. Draft legislation is to be published to push through a bill as quickly as possible through Parliament. The news comes following a consultation on the matter, which was launched shortly after his predecessor, Liz Truss, changed the Discount Rate to 0.75% in February.

Lidington said: “We want to introduce a new framework based on how claimants actually invest, as well as making sure the rate is reviewed fairly and regularly.

“In developing our proposals, we have listened carefully to the views of others, and we will continue to engage as we move forward.”

Huw Evans, director general of the Association of British Insurers (ABI), said that the decision would prove to be “fairer for claimants, customers and taxpayers”.

“The reforms would see the discount rate better reflect how claimants actually invest their compensation in reality and will provide a sound basis for setting the rate in the future. If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers,” he said.

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Marek Handzel

Marek Handzel is the editor of Claims Magazine. Marek welcomes articles, letters, or feedback from readers and can be reached by emailing marek.handzel@barkerbrooks.co.uk