Adjustments to Personal Injury Discount Rate in the UK

News Summary

Recent adjustments to the Personal Injury Discount Rate (PIDR) in the UK have raised it from -0.25% to +0.5%, effective January 11, 2025. This change follows a detailed analysis by the Government Actuary’s Department and is expected to impact future loss awards, particularly for younger claimants. The adjustment is significant for various stakeholders, including the motor insurance market, which anticipates a decrease in premiums. Moving forward, ongoing consultations will be key to understanding the implications of these changes on claims handling and valuations.

Major Update: Personal Injury Discount Rate Adjustments in the UK

The landscape of personal injury claims in the UK has undergone a significant shift with the latest adjustment to the Personal Injury Discount Rate (PIDR), which has risen from -0.25% to +0.5%. This notable change, effective from 11 January 2025, marks the first adjustment made under the Civil Liability Act 2018 (CLA 2018) and follows an in-depth analysis conducted by an expert panel.

Key Factors Behind the PIDR Increase

The increase in the PIDR was informed by a comprehensive report prepared by the Government Actuary’s Department (GAD), which utilized economic scenario generator (ESG) modeling from two external providers. The expert panel evaluated various economic indicators, particularly focusing on inflation rates and projected earnings. Concerns have arisen regarding the assumed earnings inflation rate of between 1.25% and 1.5% percentage points, sparking debates about the adequacy of the consultation carried out with the Treasury.

Furthermore, professional communities like the Forum of Complex Injury Solicitors (FOCIS) and the Association of Personal Injury Lawyers (APIL) have expressed skepticism towards GAD’s deviations from the projections outlined by the Office of Budgetary Responsibility (OBR). This skepticism centers around the consideration for the future care cost inflation rates, which several experts, including Professor Victoria Wass, argue should be higher than the adjustments made in the PIDR.

Implications for Future Loss Awards

The recent PIDR increase has significant consequences for multipliers used in calculating future loss awards, particularly impacting younger claimants who face longer periods of loss. The effects of the new PIDR rate will be felt across the entire UK, as this adjustment creates uniformity, aligning the discount rate at +0.5% in England, Wales, Scotland, and Northern Ireland.

These changes are expected to enable claimants to better meet their future needs, although the lump-sum awards may be lower than previously anticipated. Nevertheless, these adjustments reflect improved expected investment returns, which is critical for claimants’ financial planning.

Motor Insurance Market Effects

The implications of this PIDR adjustment extend beyond personal injury claims to the motor insurance market. Estimates suggest that insurers could see a reduction of approximately £50 per policy due to the changes, enhancing competitiveness within the sector and potentially leading to further premium reductions in the coming months. This could be a welcome relief for policyholders across the country who have faced rising premiums in recent years.

Looking Ahead: Future Consultations and Reviews

In light of the PIDR amendments, it is crucial for stakeholders in the legal and insurance sectors to engage in ongoing consultations regarding the impacts on claims handling and valuations. The Lord Chancellor has indicated that various elements, including tax levels, investment charges, and claimant behaviors were central to the review process.

Moreover, a reformulated version of the Ogden Tables was released by the GAD a few days prior to the PIDR change, further showcasing the urgency and significance of these updates. However, discussions surrounding the proposed review of the PIDR for Scotland and Northern Ireland have been deferred until July 2029.

Conclusion: Balancing Compensation and Skepticism

The review and adjustment of the PIDR reflect a crucial balance between ensuring that claimants receive fair compensation while mitigating over-compensation concerns. As more data and stakeholder opinions emerge, it will be vital for the respective sectors to stay informed and ready to adapt to ongoing changes in the personal injury claims landscape.

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Additional Resources

• Clyde & Co: Personal Injury Discount Rate Update
• UK Government: Ogden Tables – Actuarial Compensation Tables
• Association of Personal Injury Lawyers (APIL)
• Forum of Complex Injury Solicitors (FOCIS)
• PwC UK