Promises are like babies: easy to make, hard to deliver: Discount rate review

Following the decision in the case of Helmot v Simon (Guernsey Court of Appeal) at the end of last year, the issue of discount rate came to the surface.

The argument brought up in the Helmot case was that because of the decline in yields since 2001, when the current discount rate was set, as well as the economic decline, it was no longer realistic to expect a 2.5% annual gain on investments. The Guernsey court agreed, and used a different discount rate.

Whilst the Helmot decision is non-binding, it evoked significant pressure from the claimant lobby. APIL successfully demanded that the Lord Chancellor review the discount rate.

We are now more than 6 months on from the decision to review the discount rate, and still nothing has been finalised.

The Lord Chancellor’s decision on the discount rate is still pending, more than 6 months since he agreed to review it, following increased pressure from the claimant lobby, particularly APIL who threatened a judicial review to force the issue to be considered.

The discount rate is used to reduce items of future expense in personal injury claims. Since 2001 the discount rate has been set at 2.5%. Many believe that the rate is more likely to go down, although there are merely speculations as to what the new rate would be.

If indeed the Lord Chancellor’s decision will result in a reduction of the discount rate, an increased financial exposure to insurers will mean they will have to reassess their reserves, which in turn will mean increased premiums to the already stretched for cash public. The NHS is likely to suffer from a significant rise in damages at a time of national budget cuts.

Combined with the forthcoming new Ogden Tables, such rise in damages is likely to cause significant and sweeping implications.

The financial constraints that need to be taken into account may well be the reason for the Lord Chancellor’s delay, though it seems that the claimant lobby has no time to waste, and APIL has recently (31st March 2011) issued proceedings for a judicial review.

For more information, contact: adi.frankovitch@horwichfarrelly.co.uk