Damages (Personal Injury) Order 2017 — House of Lords, 2017-07-18
Topic: Domestic Commerce
Jeremy Hugh Beecham (Labour, Centre-left): My Lords, the noble Lord has done the House a service in raising this issue. I should refer to my interests as an unpaid consultant in my old firm of solicitors, which specialises in personal injury claims The changes effected by the order we are debating have been a long time in the making. As the Explanatory Memorandum to the order makes clear, the procedure was prescribed in the Damages Act 1996, which vested in the Lord Chancellor the power to prescribe a discount rate which the courts must consider—though not necessarily apply—when determining compensation in personal injury cases in the form of a lump sum. Until that time, the rate had been determined by the courts This is only the second occasion since 1996 when a change has been made. As we have heard, the rate has been reduced from 2.5% to minus 0.75%. The purpose of the order is to reflect in relation to awards of lump-sum damages in cases of significant monetary loss—for example, long-term loss of earnings or the cost of round-the-clock care—the average yield of index-linked gilts, as the noble Lord, Lord Hodgson, explained. Thus the damages awarded will reflect a rate of return which is designed to ensure that the claimant does not make a profit from the compensation but is adequately provided for In 2010 the then Lord Chancellor, Kenneth Clarke, initiated the process of a review and a consultation was launched in 2012 that was inconclusive. It was followed in 2015 by the report of an expert panel commissioned by Chris Grayling. A further 16 months elapsed before Mr Grayling’s successor but one consulted the Treasury and the Government Actuary, and the relevant order was finally made. Over time it became apparent that the 2.5% discount did not reflect the realities of a changing investment market, such that the compensation could run out or the injured party have to invest in higher-risk products Needless to say, the insurance industry has opposed the changes and claims that they will lead to higher premiums. This is par for the course for an industry that in recent years has done so much to increase its profits, not least by persuading the Government to effect changes in the realm of personal injury claims while making little, if any, reduction in premiums. APIL, the Association of Personal Injury Lawyers, reports that Admiral Insurance stated that motor insurance profits after the change would still be of the order of £336 million. APIL commended the statement in the Government’s consultation that they could be influenced by the effect of the change in the rate on defendants. Another organisation, Hastings, said that the reduction, "is not expected to have a material impact on the Group’s financial outlook for 2017"— so that is one insurer not apparently overconcerned at the change. Even more illuminating is the figure which Thompsons Solicitors calculated as the saving to motor insurers during the last 10 years of the 2.5% rate—a staggering £30 billion. There is little or no evidence that this has been reflected in reduced insurance premiums Given the nature of the claims in question, where long-term losses of income can occur alongside a need for special care, home or vehicle adaptations and the like, periodical payment orders—rather than one-off lump-sum payments—may well feature increasingly in the award of damages or the terms of settlement of claims. The noble Lord alluded to that desirable move.