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ACSO blog: setting the Personal Injury Discount Rate

Posted on Thu, 13/04/2023

We are just over a year away from the start of the next review of the Personal Injury Discount Rate (PIDR) in line with the Civil Liability Act 2018 (CLA).

When the PIDR was last set, the-then Lord Chancellor David Gauke also suggested the Ministry of Justice (MoJ) should gather views on whether it would be fairer to have dual or multiple discount rates. In the call for evidence duly published at the start of this year, 23 questions explored various issues, including whether different rates could be set by either duration or heads of loss.

The consultation also summarised alternative dual/multiple rate models used in other jurisdictions. However, none appeared favourable in comparison to the current, single PIDR as each has its own specific issues and places a heavier burden on the injured claimant.

The Hong Kong Model appeared most logical from an investment perspective as it considers the short, medium and long term. However, it introduces a level of complexity prior to settlement that is likely to result in increased litigation over potential disputes around which heads of loss should be included or excluded. Meanwhile the dual rate is the least complex, but presents a higher risk to the claimant if the switching point and rates used are not determined correctly.

So while a dual/multiple rate system may benefit claimants with a shorter life expectancy, it might also lead to increased legal costs and delays. Any change has to be carefully considered as the impact would be difficult and expensive to reverse.

ACSO’s view is that the most appropriate solution would be to calculate the discount rate on a single basis but with the correct assumptions in line with the CLA. This single-rate model mitigates most of the risks inherent in a discount rate per head of loss or a discount rate based on the duration of the claim. The solution to the underlying problem of unfairness with a single PIDR for very short life expectancy cases would be to put more effort into incentivising the use of periodical payment orders, so that they become the norm as opposed to the exception.

The MoJ says it expects to respond to the call for evidence in summer 2023, at which point we may know the part a dual/multiple rate system could play in the wider review which starts next summer, with an expert panel also being appointed to advise the current Lord Chancellor on setting the PIDR.

For seriously injured people, the outcome of these reviews is of fundamental importance. It is essential the right calls are made if these often incredibly vulnerable consumers are to be afforded the full support they need.