Julian Chamberlayne, Partner and Head of Aviation & International Injury, spoke at the first fully virtual APIL conference, ‘PI World’, which took place between 17 and 20 November 2020. His talk on the discount rate, titled ‘How did we get here and where are we going?’ was part of the advanced brain injury stream of sessions for experienced injury lawyers.
Julian presented a timeline of the long history of compensation for future losses, notably the key changes relating to the discount rate, multipliers and periodical payments in England, Scotland, Northern Ireland and Jersey. He discussed what full compensation means and raised important questions as to the proportion of claimants who would be under-compensated under the new discount rate regimes. During the discount rate reviews, Julian was, to our knowledge, the only published legal commentator to correctly predict that the rate would remain negative.
Julian explained the key differences between the rates in Scotland and England & Wales. Even though the Scottish rate was set by the more tightly prescribed parameters of the Scottish Act, most of the key factors and resulting determinations were the same or similar. These include the concept of making a margin adjustment to reduce the degree of under-compensation for seriously injured claimants under the new discount rate regime.
A key difference is that the assumed investment portfolio is prescribed under the Scottish Act, and includes 30% of growth assets. In contrast, the central Government Actuary’s Department (GAD) portfolio for their report on England & Wales had 42.5% riskier growth assets. Julian questioned whether that central portfolio was consistent with the requirement under the Civil Liability Act 2018 for “less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
An area of interest will be how the government approaches a split or dual rate in the future. The Lord Chancellor, David Gauke, acknowledged in July 2019 that while this is an area worthy of further consideration, there was a lack of evidence to make a finding in favour or against it. Julian questioned the focus on dual rates by period of loss and suggested instead that dual rates should be by type of loss. That would mirror the approach of the courts to periodical payments and to setting the discount rate in common law jurisdictions. It would fairly provide for the significant differential in earnings inflation, notably for care claims which are the largest component of claims for those with disabling injuries.
Julian explained how the Forum of Complex Injury Solicitors (FOCIS) had lobbied for steps to be taken to promote periodical payments. Those steps included amendment to Part 36 of the CPR to require any offer to settle in cases involving significant injuries and future losses, to be put on periodical payments terms as well.
Looking ahead to the five-yearly reviews in 2024, Julian explained that the expert panel will need to consider how economic conditions at that time affect investment returns, the composition of a truly low-risk portfolio, the impact of inflation (notably on the cost of care), the real level of investment management charges, and the pros and cons of split rates by period and type of loss.
It remains important that the setting of the rate is depoliticised and claimants remain at the centre of the discussion to ensure they have access to the compensation they require for their future needs.
Julian commented: “To make lump-sum compensation last under the new discount rate regimes, seriously injured claimants are having to take significant investment risk. Some of them will never even attempt that, and others will be in the unfortunate one third whose investments perform poorly and end up with their compensation running out. They will have to fall back on the State for support. So, while the insurance lobby vocally complained about the scale of lump-sum damages applying the new negative rates, the reality is that in most cases that is still cheaper and less risky for them than providing periodical payments.”
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