Q. I have recently heard that because the way financial losses are worked out in personal injury claims is going to change, insurance companies are going to have to pay out a lot more money to people who bring claims. What has happened?
A. In some personal injury compensation cases people claim for “future losses”. There are various kinds of these – the basic position is that if you are going to have a loss in the future that is a reasonably foreseeable result of an injury you got in an accident that was the fault of someone else then you may be able to make a claim for that future loss. A good example would be future loss of earnings if you got an injury that is going to make it harder for you to earn money in the future.
But you aren’t getting the money in the future if you settle for a lump sum compensation payment – you are getting it now. And £1 you get now is not worth the same as £1 you get in (say) ten years’ time.
The law tries to take account of this by applying something called the “discount rate”. This is based on how much money you might expect to get if you invest money you are paid now so as to cover your needs in the future – so as to make up for your loss of earnings in the future. The idea is to try to ensure that you get neither too much nor too little to make up for those future losses. The discount rate stayed at the same figure between 2001 and March 2017.
In March 2017 it changed. That change has resulted in a large increase in the amount of money claimants can expect to get for future losses in many future loss cases. Lawyers who act for injured people would say “about time too” because in recent years the amount of money you can expect to get as a return on investment has gone down and down – plummeted in fact. The discount rate had been based on percentage rate returns on investments that just are not available now.
Perhaps not surprisingly insurance companies seem to take a different view and are lobbying hard for the Government – specifically the Lord Chancellor Liz Truss who is in charge of decisions like this – to take another look at it and change the discount rate again.
Maybe that will happen. As with so much else in the law legal eagle notes that it is a question of: “watch this space”.
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