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Discount rate research reveals claimant caution on damages investment

The logo for the Association of Personal Injury Lawyers (APIL)

Research on the discount rate, funded for and encouraged by the Ministry of Justice (MoJ), has disproved the theory suggested by the government back in February that claimants are not being as cautious when it comes to investment of their damages.

As part of a consultation, published in February the government claimed that there was evidence that recipients of lump sum damages were not investing their money in a cautious way and suggested that staggered periodic payment of their compensation would be a better way in which to control this.

But the latest research figures released by Ipsos MORI Social Research Institute contradicts this claim and with the use of both quantitative and qualitative research concluded that although most claimants did invest in mixed portfolios (as the government previously suggested), they tended to focus on minimising risk when it came to their investments rather than seeking opportunities to get higher rates of return, which was also suggested by the government previously.

An increase in the discount rate was also hinted at by Justice Minister, Helen Grant after February’s consultation, something that the Association of Personal Injury Lawyers (APIL) strongly contested at the time and in the latest research it was noted that even the very slightest shift in the discount rate could have significant consequences for future pecuniary loss calculated in the claim value for large-value cases but did not necessarily mean that it would affect claimants attitudes towards spending and investment.

It is the strong belief of APIL that the discount rate on damages should in fact be decreased if there is to be any change based on the fact that the figures that it was formed on are no longer relevant and that as it stands thousands of claimants are still being under-compensated for their injuries.

But this is not the view shared by the insurance industry and after the revelations of the latest research, insurance law firm Kennedys, who have campaigned on behalf of the defendants in this argument showed their appreciation for the findings.

Christopher Malia who is a partner at the firm said: “I was pleased to see the research recognise that even a small reduction in the rate would have a significant impact on public bodies and insurers. However, it is unfortunate that the research did not go wider to actually address whether a claimant’s damages run out.

“In fact the research concludes by highlighting a significant number of evidence gaps, which may lead the MoJ to further delay a decision into the rate. Public bodies and insurers are waiting clarity on this important issue and we continue to urge the government to maintain one discount rate for all heads of loss. Furthermore, once set, the discount rate should be in place for at least 10 years so as to provide stability.”

But stability is one word that is lacking when it comes to how the personal injury industry is currently being run but the government as more and more of their policy changes and reforms seem to tilt the balance further in favour of the defendant. What the insurers and the government would do well to consider when making these decisions is that if it wasn’t for the negligence of the defendant in the first place, there would be no claims for compensation.

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