Insurers welcome review of rate used to set personal injury compensation payouts

A review of the rate which helps to set compensation payouts when people suffer serious injuries has got under way.

The personal injury discount rate is applied to larger scale personal injury awards to reflect investment return that a typical claimant could expect to earn if investing their award payment.

In accordance with requirements under the law, Lord Chancellor and Secretary of State for Justice David Gauke said he would make the determination about the rate on or before August 5.

The review was welcomed by insurers, who previously said a cut in the discount rate in 2017 from 2.5% to minus 0.75% risked distorting the compensation process and pushing up insurance premiums.

When victims of life-changing injuries accept lump sum compensation, the rate is applied when calculating the payout, to take into account the potential returns that they could expect to receive from their money over time from investing the cash.

The Civil Liability Act, which received Royal Assent in December, changes the way the rate is set under the Damages Act 1996.

To help inform the decision on the rate, a recent Government call for evidence has also asked people about how they invest their compensation payouts.

James Dalton, director, general insurance policy, Association of British Insurers (ABI), said: “We welcome today’s announcement.

“Insurers remain committed to paying 100% compensation and want to see a process for setting the discount rate that delivers a fair outcome for claimants, motorists and taxpayers.

“The outcome of the review must deliver this, and we will continue to play our part to ensure that it does.”