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Setting the personal injury discount rate

Lord Bellamy KC recently announced a Call for Evidence in relation to the Personal Injury Discount rate. The Call for Evidence is open until 9th April 2024 and follows a Call for Evidence on the possibility of setting a dual Discount Rate with one rate for shorter-term losses and another for longer-term losses.

The Personal Injury Discount Rate (“Discount Rate”) is used to help calculate future losses in personal injury cases. The purpose of a personal injury claim is, as far as possible, to put the Claimant back in the position that they would have been in but for the accident. Where the Claimant will suffer losses in the future we use multipliers, which are based on the Discount Rate, to calculate them. The level that the Discount Rate is set at therefore has a significant effect on the value of claims for people who have suffered serious injuries that will cause them to suffer losses in the future.

The Discount Rate is currently set at -0.25% reflecting the fact that for a number of years a Claimant is expected to make a loss on a safe investment when inflation is factored in.

The Isle of Man Discount Rate was recently changed from -0.25% to 1% using data from the UK Government Actuary’s Department.

The review of the Discount Rate must be completed in 2024 and it is expected that a new Discount Rate could even be announced around summer 2024. Any change to the Discount Rate will have an effect on the compensation that seriously injured Claimants will be awarded with a reduction (i.e. a move towards a more negative rate) leading to an increase in the value of future losses and an increase (i.e. a move to 0% or a positive rate) leading to a reduction in the value of claims for future loss. Any change to the Discount Rate will be most marked for younger Claimants who typically have longer claims for future loss.

Any increase to the Discount Rate will move into focus the need to consider on all suitable cases the use of Periodical Payments for future losses to ensure that Claimants are adequately compensated in the long-term.