Compensation and the Discount Rate: what’s it all about?

For several years, there has been disagreement about the compensation paid to people with serious, life-changing injuries.

Personal injury lawyers had long argued that accident victims were being under-compensated and were missing out on the care and support they desperately needed because of the outdated way compensation was calculated. Insurers, on the other hand, defended the status quo, claiming changes would result in a significant rise in claim costs.

This disagreement was due to controversy surrounding the so-called ‘Discount Rate’. But what is the Discount Rate and why is it such an issue?

The compensation a seriously injured individual receives to pay for their anticipated future financial losses is adjusted to allow for the interest they can expect to earn by investing the lump sum now.  The percentage used to adjust the lump sum is known as the Discount Rate.

Up until recently, the Discount Rate had remained at 2.5% for 16 years.  When it was set by the then Lord Chancellor, Lord Irvine, the rate was considered acceptable by many (although by no means everyone).

However, fast forward several years’ later with the financial crash of 2008 and index-linked government securities (ILGS) hovering around zero, accident victims were no longer receiving large interest payments on their investments. This left many claimants under-compensated and facing the possibility of running out of money for essential care and support in the future.

To counteract this, the Government introduced a new Discount Rate of -0.75% in March this year – much to the insurance industry’s dismay. In fact, the Association of British Insurers called it an “absurdly low rate” that was “crazy” and “reckless in the extreme”. They are pushing for the decision to be reviewed and there is a possibility that we will see the Discount Rate amended again later this year.

However, the new rate has been welcomed with open arms by personal injury lawyers and at Novum Law, we are delighted that it will add thousands, if not hundreds of thousands, to the lump sums being awarded to Claimants and, most importantly, affording them peace of mind for their future financial security.

It means that individuals are now being treated in a much fairer way and are being adequately compensated for their injuries. It also takes the cost of caring for people away from the taxpayer and puts it squarely where it should be – with the person who caused the life-changing injuries in the first place.

At Novum Law, our team of specialist personal injury lawyers work solely on behalf of people who’ve been seriously injured through no fault of their own. We will always fight in our clients’ corner for the maximum level of compensation available and access to the best rehabilitation, care and support packages.

If you have any questions about any aspect of personal injury compensation, you can call us on: 0800 884 0777 or email: info@novumlaw.com.