In February the Lord Chancellor announced a cut in the discount rate, moving it from +2.5% to -0.75%.

The discount rate reflects the level of investment return that a claimant can expect to achieve by investing their award.

The Discount Rate is a Government set rate used when a personal injury claim occurs, and a lump sum is paid in compensation for a life changing injury.

What this means for you and your business

The Discount Rate hadn’t been adjusted since 2001 and interest rates have fallen since the Discount Rate was last adjusted, which means that less investment income is available today.

The Government wants to ensure that claimants receive the appropriate amount of compensation for the remainder of their lives.

The amount of the award is adjusted to compensate for the amount of interest a claimant can expect to earn by investing this lump sum. The courts apply the rate to any future losses the claimant may have, including continuing care needs and potential loss of earnings.

Therefore, to ensure that the claimant is still fairly compensated the settlement needs to be higher – the lower the Discount Rate, the higher the compensation needs to be.

This change will apply to all claims settled on or after 20 March 2017 regardless of when the loss occurred. It will therefore have a significant impact on the cost of future settled claims and that will need to be reflected in future casualty and motor premiums.

Insurers use complex calculations to determine the sum that is awarded to those claims involving life changing injuries.

The new Discount Rate will apply to all claims settled in England and Wales on or after 20 March 2017 regardless of when the incident happened or when it was reported to insurers.

The current statutory minimum requirement for Employers’ Liability cover is £5,000,000 although, the normal market indemnity limit is £10,000,000. However, there is no statutory requirement for a business to have Public Liability insurance but it is just as important.

Claim examples:

Employers Liability

Amputated foot, reserve increased from £2.3m to £3.5m

Cause of loss Claimant was loading a press with 6 meter long aluminium logs which arrive in bundles. After cutting the banding, instead of rolling down the table, one log rolled back off the table and landed on claimant’s foot. Injury Initially crush fractures to toes of right foot and subsequent operations to amputate great toe, then mid foot and finally whole foot.

Employers Liability

Reserve from £5.3m to £10.6m

Cause of loss Fall from height of 8m. Injury Severe brain injury, claimant remains in hospital following accident over 12 months ago and still unable to speak.

Comment Reserve increased by £5.3m due to change in the discount rate, future cost of care making up a significant percentage of the increase.

Are your current liability limits high enough to protect your business?

We are seeing large increases in estimates/payments to claimants – are your on Public, Products and Employers Liability Limits of Indemnity adequate? If you are unsure whether you have the right level of cover please contact GPS Insurance Brokers on 020 8207 7385.

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