UK Government
announces new
bodily injury
discount rate

Read time: 4 minutes

News & Blog News UK Government announces new bodily injury discount rate

UK Government announces new bodily injury discount rate

Read time: 4 minutes

The new discount rate for personal injury claims announced by the Lord Chancellor on 15 July 2019 is considerably lower than previously expected. 

On 15 July 2019, the Lord Chancellor set the Discount Rate for bodily injury claims at minus 0.25% as of 5 August 2019. The discount rate is used in the adjustment of damages paid to seriously injured individuals and is related to future losses. In our post Consequences of UK discount rate change for personal injury compensation, our colleague Paul Lavelle extensively explained the importance of the change in the bodily injury discount rate. 

At the time, a change from minus 0.75% to a new rate ranging between 0 and 1% was envisaged. The reason for a much needed increase in the rate was that victims were being overcompensated for future losses. The previous rate of – 0.75% suggested that investments would have a negative yield. As a result, a review had been announced. A new procedure for reviewing the rate was contained in the Civil Liability Act 2018, in which the procedure of benchmarking with the low-yielding UK index-linked gilts (ILGs) had been removed. 

The new rate announced in July at – 0.25% is still surprisingly low, being at the bottom of the range mooted by the Ministry of Justice in 2017, i.e. 0 – 1%. This is particularly surprising given that rates in other jurisdictions, such as Spain using a positive 3.5%, are considerably higher.

The announcement may also have an effect in Scotland, where, at the beginning of July, the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 came into force. The UK Government Actuary’s Department will be required to recommend a new Scottish Discount Rate and present its recommendations to Scottish Ministers by 28 September 2019. Other than in England and Wales, the prediction in Scotland already was a negative rate of – 0.25%.

Future Discount Rate Review

The Civil Liabilities Act provides for the rate to be reviewed at least every five years. We can, therefore, expect the next review process to start in July 2024 and be completed 180 days after commencement. 

Insurers and their representatives are strongly advised to review any claims and reserves which will be affected by the new rate. Insurers should also consider whether they may still apply a different, more appropriate rate. For instance, where a Claimant is living in another jurisdiction, receiving care and investing any damages in that jurisdiction rather than in England & Wales. 

Paul Lavelle

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