Following yesterday's announcement on the Discount Rate, Ravinder Johal, Head of Litigation at Strata Solicitors, GB's In-House Law Firm provides an update on what this means. 

The Lord Chancellor, Shabana Mahmood, has today announced that the Personal Injury Discount rate (PIDR) will increase to 0.5%, as required by the Civil Liability Act 2018. 

The PIDR has been set at -0.25% since August 2019 and the increase brings the UK rate in line with that of Scotland and Northern Ireland.  

Injured parties who sustain serious personal injuries, may be awarded lump sums for future losses. These cash amounts are intended to provide injured parties with full and fair financial compensation for all expected losses and costs caused by their injuries. 

Where future losses are settled as a cash amount, the lump sum is calculated allowing for the period over which losses and costs are expected to be met, and an assumed investment return that a claimant expects to earn on the lump sum award. 

As a very basic example for illustrative purposes only, a 25-year-old female who was earning £25,000 per annum and planned to retire at 70, but can now never work again, would be entitled to claim £1.15m under the old 2019 rate. As a result of the change in PIDR, her future loss of earnings claim is now limited to £976,250. 

The announcement will be welcomed by the Defendant Insurance industry, although such an increase has been widely expected for some months and most insurers and/or practitioners will have already factored the anticipated increase in to their financial modelling. For those that have yet to do so, reserves will need to be looked at re-assessed, as well as consideration to any live offers made or received, involving future losses.  

The decision will be effective from 11th January 2025.