Dual discount rate

APIL warns of under compensation risk in discount rate reform

Proposals for a dual or multiple personal injury discount rate would place additional pressure on catastrophically injured people, APIL has warned the Ministry of Justice (MoJ).

The association has responded to an MoJ consultation which includes plans to adopt different discount rates depending on how long the compensation needs to last.

“Injured people are already forced to take risks when investing their compensation to try to make it meet their needs for the rest of their lives. The idea of a dual discount rate is founded on the assumption that the longer an investor is prepared to invest their money the more risk they can take and consequently the better returns they can expect,” said APIL president John McQuater.

“But injured people are not ordinary investors. They are inherently risk averse, something which the MoJ repeatedly fails to recognise,” he went on.

“We can find no evidence that injured people seek to take risks or that a dual or multiple discount rate will make the situation any better for victims of negligence. In fact, a higher rate for people with longer life expectancies will pile additional pressure on them to take greater risks to make their compensation stretch to meet their needs.

“And, of course, it would hand insurers a savings windfall,” Mr McQuater said.

“By the Government’s own admission, a third of claimants who have settled their claims under the current single rate will not be able to meet 100 per cent of their financial losses. Economic instability and high inflation have amplified the expected level of under compensation since the rate was last set,” he went on.

“The current single discount rate is not perfect, but a dual or multiple rate will exacerbate the chance of under compensation even further.

“More could be done to increase the use of periodical payment orders (PPOs) which remove the substantial risks faced by injured people who must invest their compensation over time, including fluctuations in the market,” he said.

“In a survey of APIL members in 2020, 88 per cent said they found it difficult to obtain a PPO from an insurer. This is despite more than half of seriously injured victims of negligence preferring to receive some or all of their compensation in the form of a PPO, according to a YouGov poll,” said Mr McQuater.