Claimants will now receive a fairer deal when it comes to compensation
From the 20 March Claimants are set to receive a fairer deal when it comes to lump sum settlement awards. The “Discount Rate” applied to compensation payments will be lowered from 2.5% to -0.75% following an announcement from the Lord Chancellor.
Claimants who receive lump sum payments as compensation to cover future financial losses, for example lost earnings, further treatment and future care following a successful claim are expected to invest this money and receive a return, which they can then use for their future needs.
The Discount Rate reflects the likely rate of return on those investments. The rate has remained unchanged since 2001, but from 20 March 2017 it’s set to be reduced from 2.5% to minus 0.75%.
This change reflects the very low yields Claimants were receiving on investments due to low interest rates and the fact that Index-Linked Government Stocks have dropped since 2001.
As a result, the Insurance Companies were saving millions of pounds in unpaid compensation.
Severely injured people who had been involved in an accident through no fault of their own and who required lifelong care as a result were finding that because of the way the lump sum awards were being calculated, the compensation they were receiving was insufficient to meet their needs long term.
A study published in the Law Gazette 5 years ago, considered the case of a 17-year old boy claiming for serious head injuries. It concluded that the Claimant could have been under-compensated by as much as 50%. The compensation ‘gap’ would of course have profound implications for the family that has been left with lifetime caring duties.
The Association of Personal Injury Lawyers (APIL) first began Judicial Review Proceedings on the issue of how the discount rate was being calculated over six years ago.
Cromptons Solicitors welcome the change in the Discount Rate. The change in the rate reflects the fact that most Claimants are risk averse investors. The new Discount Rate will ensure that those who are severely injured, often through no fault of their own and who may be dependent on lifelong care, will find that the compensation awarded to them should now be sufficient to take care of their needs for remainder of their life.
Since the decision to reduce the Discount Rate to negative territory was announced, APIL have commented by saying “injured people can now be assured that the compensation needed to look after them is calculated correctly and is sufficient to provide care for the rest of their lives. It is what they need and deserve.”
Insurance companies paying out compensation settlements will now have to pay more to ensure Claimants are compensated fairly. The compensation awarded under the new Discount Rate should ensure that in cases such as the 17-year old boy referred to in the Law Gazettes study above should no longer face a ‘gap’ in funding when it comes to his care needs later on in life.