Discount Rate Decision and New Portal Shake Up the Industry
3 minute read | August 28, 2019
The former Lord Chancellor, David Gauke MP, in one of his final acts as Justice Secretary, announced that the Discount Rate, a mechanism to calculate the level of compensation for seriously injured people, would move from -0.75% to -0.25%.
That doesn’t sound like much of a swing, but over the course of an injured person’s lifetime, the numbers are significant. A seriously injured 15-year-old child requiring lifetime care may, for example, need £250k per year to pay for it; under the previous Discount Rate of -0.75 that would cost £23.5m. Under the new rate that sum would reduce to £21.1m.
The decision was viewed as very disappointing by Insurers, less so by Claimant Lawyers. The Discount Rate is in many ways a classic no win for the Lord Chancellor. Raise it by too much, and Claimant Lawyers cry foul, lower it and the Insurers grumble about the effect on insurance premiums.
What everyone can agree on is the value of certainty. The new rate will last for up to five years, after which, as set down in the Civil Liability Act, a new review will be held. It is important to acknowledge that Discount Rate setting will at least be more attuned to the economic climate of the times, surely a better outcome than leaving it to blow in the political wind.</p
Ministers still plan for the second major part of the Civil Liability Act, the LiP (Litigant in Person) portal for minor injury claims, to be implemented in April 2020, but concern is growing across the industry, on both claimant and defendant sides, that it won’t be ready in time. The problem is that even making simple injury claims is tricky, especially if you have to include hire, repair and rehabilitation costs in the customer experience.
What happens if the customer is not computer literate, or doesn’t have internet access? What about customers whose claim is disputed by the insurer? Will LiPs have to pay upfront costs themselves, for example for medical reports? It’s not everyone who can drum up the cash for a £180 medical report on their condition just like that.
Ministers have promised that the system will be better than the current system, but so far it looks as though the overriding aim has been to cut costs, rather than deliver a super slick, smooth customer experience. The risk is that there will be widespread customer detriment as a result, the exact opposite of what the government promised.
Most people would agree that the government’s track record on IT hasn’t been great, and while no one disputes that the digital world offers a chance for injured claimants to benefit from the power of technology, there is a world of difference between the aspiration and what may eventually appear.
In the meantime, the industry, which generally writes policies, for example legal expenses insurance, on a twelve-month renewable cycle, is already insuring customers for the months beyond April next year, without having the first idea what that world will be like in reality.
Boris Johnson, our new Prime Minister, has recently re-shuffled the top team, with Robert Buckland QC MP taking over as Lord Chancellor and Justice Secretary. He will have the opportunity to put his foot on the ball and review this project. Let us hope the new Lord Chancellor is a pragmatic sort.
Glen Eastwood, MSL’s Managing Director commented…
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“There is no doubt that Insurers and Reinsurers will be disappointed by the level of the new Discount Rate. Whilst it was an improvement for compensators from the previous position, the rate was widely expected to land somewhere between 0% and 1%, which would have resulted in lower value claims than we will now see.
Claimant lawyers will be happier, given that they will be in a position to secure stronger levels of damages for those clients suffering serious injuries. There are still many questions outstanding in relation to the new LiP Portal, a key one being whether it will be fully operational from the planned date of April 2020.
MSL continues to track progress in this important area to ensure that we’re still able to offer our clients and their customers the very best levels of service and customer experience.”