Back in February then Lord Chancellor, Elizabeth Truss, reduced the discount rate from 2.5% to 0.75%. This was the first change in the discount rate since December 2001. This changed caused up-roar amongst the large insurance companies. Huw Evans, Director General of the Association of British Insurers, called the move a “crazy decision.” Mr Evans also added “Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK”. That’s why your premiums may have increased recently, of course profit margins cannot be reduced for the sake of the consumer.
When announcing the decrease in the discount rate, Truss did say there would be a further consultation. This consultation has been happening in the background and we should receive a response by August 3, 2017. It is understood that the Government has received 135 responses to this consultation which ended in May this year.
Regardless of the consultation, the Government has acknowledged the Discount Rate needs to be changed more frequently than every sixteen years. This would be to ensure that Claimants are not over-compensated or under-compensated. We anticipate this point being addressed in the Government’s response to the consultation, however Lord Keen of Elie gave little away about the direction this is likely to take.
“Underlying the consultation was the wish of the government to make sure that the way the rate is set is put on the firmest possible footing in future, so that we have a better and fairer system for claimants and defendants, and, in so doing, keeping true to the 100% principle—namely, that claimants are paid no more but no less than they should be”
On an interesting note, Labour justice spokesman Lord Beecham quoted a figure calculated by a Claimant firm of Solicitors that insurers have saved “a staggering £30bn” during the last 10 years due to the higher 2.5% discount rate. “There is little or no evidence that this has been reflected in reduced insurance premiums” he added.
The Discount Rate is relatively low at the minute with no denying that this suits Claimants a lot more than Defendants. Will it be increased? Yes, we think so, but we don’t think it will be increased back to as high as the old 2.5%, which was introduced in 2001.
Times change, the law changes and so should the Discount Rate. Given the comments of Lord Keen above, we also think the Discount Rate needs be reviewed by the Government on a more regular basis.