Lord Chancellor Shabana Mahmood has said that the personal injury discount rate will increase to 0.5 per cent in England and Wales, in a move welcomed by the insurance industry.
Following a review of the personal injury discount rate, which is applied in the assessment of the financial award for injury victims for future financial losses, has been increased from minus 0.25 per cent to plus 0.5 per cent.
Commenting on her decision, Mahmood said: “It is my duty to set the rate at the level which I believe most reasonably reflects the rate of return that claimants could be expected to receive from their investment of relevant lump sum damages.”
The move by the Lord Chancellor follows Northern Ireland and Scotland and will be effective from 11 January 2025.
A spokesperson for the Association of British Insurers (ABI) said the increase “is welcomed”.
“The move to a positive rate reflects the improved investment market conditions since the rate was last set five years ago,” the ABI added.
Jonathan Edwards, partner and head of insurance and risk at HCR Law said that this was “very good news for insurers”.
He explained that it “will hopefully begin to mitigate significant claims inflation over recent years, fuelled by the ever-increasing cost of living, potentially freeing up funds for insurers to utilise elsewhere.”
For legal advisers, Edwards said they will be reviewing “previous advice on settlement strategies and parameters in light of this news”.
He added that “this is particularly important in relation to costs protective settlement offers”.
His example was injury claims where the litigation rule that the loser pays the costs doesn’t apply, as defendants (insurers) have to fund the defence costs, subject to some limited exceptions.
“The consequent reduction in claims valuations following the new personal injury discount rate means claimants may be less likely to beat defence offers previously made, and therefore more likely to have to fund defence costs from their damages pot,” he said, adding: “Defence lawyers will be considering whether to advise defendants to withdraw offers made, as the risk of over-compensation may have increased,” Edwards added.