Discount rate seminar, March 2017, London

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Text of Discount rate seminar, March 2017, London

  • The Discount Rate: what you need to knowJames Arrowsmith

  • Learning Objectives

    What has changed Impacts on injury claims. Which claims will be affected. Impacts of the change Claims behaviours which may emerge The future of the discount rate

  • Present capital value

    100,000 care per annum for 10 years. How much should the claimant get to cover this?

    0

    100000

    200000

    300000

    400000

    500000

    600000

    700000

    800000

    900000

    1000000

    1 2 3 4 5 6 7 8 9 10 11

  • The discount rate

    the court shalltake into account such rate ofreturn as may be prescribed bythe LordChancellor (Damages Act 1996)

    Wells v Wells 1999 principle of full compensation Index Linked Government Stocks (ILGS) yields

    Set at 2.5% in 2001 by Lord Chancellor

  • The New Rate

    The Damages (Personal Injury) Order 2017 Rate of minus 0.75% Effective from 20 March 2017

  • What losses are affected?Unaffected Affected

    General Damages

    All Past losses

    Immediate future loss (eg treatment)

    CRU liabilities

    Future care

    Future earnings

    Deferred payments ( eg treatment)

    Pension losses

    Cost of an alternative home

    Dependency claims following fatalaccidents.

    Lump sum awards (eg handicap onthe labour market)

    Litigation costs

  • Claims that will not be affected

    Claims not relating to injury or fatal accidents

    Claims involving only injury and/or past losses

    In general, little impact on claims reserved under100,000.

    Most liability claims will not be affected

  • Impact: example

    Female, 250,000 care pa for life:

    2.5% Minus 0.75% Change

    Age 30 7.7 million 19.2 million + 150%

    Age 50 6.0 million 11.4 million + 90%

    Age 70 3.7 million 5.4 million + 46%

  • Ongoing losses

    Care, earnings, case management, deputy,therapy, transport, dependency.

    For example, a 30 year old female:

    Discount Rate 2.5% Minus 0.75% % change

    Care/CM 250kpa

    7.7 million 19.2 million + 150%

    Earnings 30k pa 0.6 million 1.1 million + 83%

  • Deferred losses

    Future surgery, pension, deterioration leading tocare or loss of job.

    A hip injury will lead to replacement surgery in 20years with a 20,000 loss:

    Discount Rate 2.5% Minus 0.75% % change

    Total 12,200 23,200 + 90%

  • Accommodation

    The rate change calls the current approach(Roberts v Johnstone) into question.

    Theoretical and practical issues to be addressed.

    Anecdotally settlements are occurring with no sumfor accommodation

  • Impact on a claims portfolio

    -

    5,000,000.00

    10,000,000.00

    15,000,000.00

    20,000,000.00

    25,000,000.00

    30,000,000.00

    35,000,000.00

    Value pre rate change

    at 2.5%

    at minus 0.75%

  • Impact on a claims portfolio

    -

    5,000,000.00

    10,000,000.00

    15,000,000.00

    20,000,000.00

    25,000,000.00

    30,000,000.00

    35,000,000.00

    Value pre rate change

    at 2.5%

    at minus 0.75%

  • Impact on a claims portfolio

    -

    5,000,000.00

    10,000,000.00

    15,000,000.00

    20,000,000.00

    25,000,000.00

    30,000,000.00

    35,000,000.00

    Value pre rate change

    at 2.5%

    at minus 0.75%

  • Policyholder impact

    -

    5,000,000.00

    10,000,000.00

    15,000,000.00

    20,000,000.00

    25,000,000.00

    30,000,000.00

    35,000,000.00

    Value pre rate change

    at 2.5%

    at minus 0.75%

  • Immediate steps in claims

    Re-pleading and re-reserving

    Escalation and check limits of indemnity

    Review and revise offers

  • Claim behaviours

    Dependant on trial date possible further change

    Consider settlement strategy (now or later)

    Increased scrutiny on long term prospects lifeexpectancy and timing/quantum of deferred loss

    Impacts assessment of periodical payments

  • Further reform

    Statement to the Stock Exchange promised afurther consultation on methodology prior to Easter

    Hammond acknowledged the need to balanceclaimant and consumer interests

    Politically the expectation is for an increase.

  • Process

    Consultation paper

    Time for response

    Prison and Courts Bill 2017

    When and how much?

  • Questions

    James ArrowsmithE: James.Arrowsmith@brownejacobson.comT: 0121 237 3981

  • All information correct at time of production.

    The information and opinions expressed within this document areno substitute for full legal advice. It is for guidance only andillustrates the law as at the published date. If in doubt, pleasetelephone us on 0370 270 6000.

    Browne Jacobson LLP 2017 The information contained withinthis document is and shall remain the property of BrowneJacobson. This document may not be reproduced without the priorconsent of Browne Jacobson.