Insurance lawyers cheer Lidington’s Ogden rate reforms

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Sep 08, 2017
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David Lidington has announced that the discount rate will be reset with reference to "low risk" investments

BEN STANSALL/AFP/Getty Images

Government plans to reform the interest rate equation used for calculating damages in medical negligence and serious personal injury claims are likely to reflect existing informal practice, lawyers said yesterday. 

David Lidington, the justice secretary, announced that the so-called Ogden discount rate would be reset with reference to "low risk" rather than "very low risk" investments.

Analysts suggest that if the new system were to be applied today, the rate might be in the region of 0 to 1 per cent.

Lidington’s predecessor, Liz Truss, angered insurance companies when she slashed the discount rate to minus 0.75 per cent to reflect an environment of much lower interest rates compared with when the rate was last amended. However, lawyers acting for claimants welcomed the move at the time.

In response to yesterday’s announcement, defendant law firms argued that practitioners had already agreed on a similar level.

“Both claimants and compensators have in any event been pragmatically negotiating settlements within the 0 per cent to 1 per cent range since February, regardless of the prevailing minus 0.75 per cent rate, in anticipation of further reforms,” Mark Burton, a partner at the City of London law firm Kennedys, said.

Peter Walmsley, a partner at another defendant law firm, Clyde & Co, said that “common sense looks to have prevailed and insurers will be relieved that the discount rate looks set to rise”. However, he maintained that a rate of 0 per cent would still be too low.

Lawyers acting for claimants were predictably displeased by Lidington’s announcement. Peter Todd, a partner at the London firm Hodge Jones & Allen, who advises the Association of Personal Injury Lawyers on the discount rate, said that the government would now “require injured people to gamble their compensation in investments with risk in order to be able to fund, in particular, the future care they need.

“Whilst many claimants succeed in their investment risks, inevitably some will fail and will now no longer have a guaranteed safe, secure and dignified future.”

Todd charged the government with having “prioritised the insurance industry’s profits over the secure and dignified future of injured people”.

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