Discount Rate Announcement: Discount Rate Reduction – Plus 2.5% to Minus 0.75%
The Scottish Government passed an order yesterday – The Damages (Personal Injury) (Scotland) Order 2017 which makes the Discount Rate in Scotland minus 0.75 with effect from 28th March and brings Scotland into line with England & Wales.
The UK Government has said it will review the framework under which the discount rate is set and will shortly launch a consultation which will consider:
- Whether the rate in future should be set by an independent body.
- Whether more frequent reviews would improve predictability and certainty for all parties.
- Very importantly whether the methodology which assumes that Claimants only invest in Index Linked Gilts is appropriate for the future i.e. are all Claimants risk averse investors or invest in other investment vehicles where returns are far greater?
We anticipate that the Scottish Government will follow the Consultation and its outcome closely. It remains to be seen whether there will be a similar consultation in Scotland.
As in England and Wales, the practical effect is that rather than awards of damages being discounted for accelerated receipt they will now be uplifted for accelerated receipt.
This obviously has a huge impact for the insurance and risk management industry given that returns on premium income remain low. We will see a substantial increase in the value of future loss claims.
Periodical Payment Orders (PPOs) are not yet part of the landscape in Scotland and can only take place by agreement. However, it is anticipated that they will be part of a Costs Bill which will start its progress in the Scottish Parliament before the summer and in the new landscape PPOs may be attractive to insurers in Scotland.
As in England and Wales insurers and compensators will need to review their strategy in each case affected by the change. We suggest:
- A review of all reserves where future losses are being claimed to ensure that they are increased where appropriate
- Where a Tender (Part 36 offer) has previously been made then such offers should be reassessed and increased as appropriate
- Review strategies for upcoming Pre-trial meetings or Proofs (Trials)
Cameron McNaught, Partner
T: 0131 3229 252 E: email@example.com