Overdue Compensation Changes Set To Ensure Injury Sufferers Receive Fair Settlements

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The Law Of… ensuring injury sufferers receive fair compensation

Those who suffer long-term life changing injuries are set to receive fairer amounts of compensation after Lord Chancellor Liz Truss dropped the discount rate from 2.5% to minus 0.75%.

Discount Rate Change Benefits Claimants

The change will mean that those who suffer injuries that are deemed to result in future losses, such as the future cost of care and potential loss of earnings, will receive more compensation to help their recovery.

Unsurprisingly the move has been met with derision from the insurance industry, which warns that premiums will need to be increased to protect profits.

Responding to the discount rate change, Jonathan Thursby – Solicitor on Simpson Millar's Personal Injury team – explains that the insurance industry should have been anticipating this change for years and should already have contingencies in place to protect customer premiums.

Compensation Discount Rate

When an accident victim is awarded compensation they never receive the full amount, as it is assumed that they will earn interest on the lump sum amount awarded; the potential amount a claimant could earn from their payment is calculated and removed before compensation is paid.

The figure that dictates the amount to be removed is called the discount rate and is set by the Lord Chancellor, who has to find a rate that ensures that claimants receive a fair amount of compensation whilst ensuring that insurers do not overpay.

Since 2001 the discount rate has sat at 2.5%, meaning that the amount of compensation received by accident victims over time has, in relative terms, decreased.

In cases of serious injuries with life-changing consequences, this 2.5% figure could have a serious effect as compensation in these cases should cover care and living expenses for the rest of the claimants' life.

In some instances the 2.5% discount rate could mean that care funding runs out and claimants have to find alternative means to pay for their ongoing care; this is especially prevalent in cases where claimants are unable to find a savings or investment option that returns the 2.5% removed by the discount rate – which is increasingly the case at a time when the Bank of England's interest rate sits at a record low.

The discount rate is decided using a formula that assumes a claimant will invest their lump sum in government bonds, with the cost of inflation factored in to produce a final figure that outlines how much money could be made from a lump sum compensation payment.

Long Overdue Change

The rate was last revised in 2001, when the interest rate sat at 5.75% – today this stands at a record-low 0.25% – highlighting the fact that a change to the discount rate has been long overdue.

For many years claimants have seen their compensation amounts slashed too much, leaving them out of pocket and unfairly short-changed once the long-term effects of their injuries become apparent.

A change to the discount rate has been on the cards for six years, since the Association of Personal Injury Lawyers (APIL) began judicial review proceedings on the issue.

Jonathan explains how the welcome discount rate review should not come as a surprise:

"Dramatically lower interest rates and increased inflation means that claimants have been short-changed for years, with many claims cut too far by the 2.5% discount rate and leaving blameless accident victims out of pocket for an injury that they did not cause or ask for."

"The insurance industry is claiming that they will be forced to increase premiums to accommodate for higher compensation amounts, but they've known this change was on the cards for years and could have used the millions they've been saving in unpaid compensation since 2001 to prepare themselves for this change."

"The Lord Chancellor herself admitted that the minus 0.75% rate is the only legally acceptable rate that could be set, as claimants investing in government bonds would be set to lose money once inflation is taken into account."

"This change goes some way to treating blameless victims of accidents fairly and with compassion, despite reports attempting to focus on increased insurance premiums."

"Consumers will still be able to get a good deal on their insurance premiums by shopping around and, if car insurers follow through with their promise to pass on savings they will make from recent whiplash reforms, then I am sure that motorists will not be greatly affected by making the compensation process fairer for the wider general public."



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