On 11 September the Ministry of Justice (MoJ) published its summary of responses to the split/dual rate consultation on the Personal Injury Discount Rate (PIDR). The 46 page summary exposes the very wide range of views on the pros and cons of differing types of dual rate. Risk and Funding Partner Julian Chamberlayne has written extensively on the consultation to date, and now reviews the responses and next steps.
There was not even unanimity within the usually unified camp of defendants and insurers, who collectively put in the most responses. Some insurers favoured the Ontario model (using a short-term and a long-term rate with the switching point period fixed at 15 years), but even those who did would rather not have the annual reviews that necessarily go with having a short term rate. Others preferred to stick to a single rate for certainty, ease of reserving and reduced volatility. There also appeared to be an acceptance that a duration-based dual rate could discriminate against claimants with severe disabilities.
Commentary
In light of the considerable degree of uncertainty about the consequences of a dual rate by duration system, I remain of the view that it would be a risky and unnecessary experiment to head off down that road.
The divergence of opinions reinforces my view that the most likely outcome of this review is that England and Wales will retain a single rate, as it is a simple and known commodity used by most jurisdictions worldwide. This would only require reviews every five years rather than annually.
The most significant underlying problem with a single PIDR is the unfairness of the current -0.25% rate for very short life expectancy cases. That is compounded by the acute nature of the longevity risk in such cases (eg where the claimant is predicted to live seven years with huge care needs but lives 10 years). However, periodical payment orders (PPO) are already the better solution, and the MoJ should put effort into incentivising their broader use.
What happens next?
The baton now passes to the expert panel who will be reviewing this and under issues relating to the PIDR, before advising the Lord Chancellor for his review, which is due to commence by no later than 15 July 2024.
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