The Government has made clear that it has no preference for a dual/multiple PIDR over a single rate or for a dual rate over a multiple rate.
Personal Injury Discount Rate (PIDR) - dual/multiple rates– Government publishes consultation responses
On 11 September 2023, the Government published its response to the earlier call for evidence on the PIDR and specifically on the option of adopting dual/multiple rates. The call for evidence opened in January 2023 and closed on 11 April.
The responses will now be considered by a panel of independent experts ahead of the next PIDR review which will commence by 15 July 2024. The purpose of the Government’s response is to summarise the evidence it has received on this important issue and to provide further detail on the next steps and the consideration of a dual/multiple PIDR.
Background to the PIDR
When the PIDR was last reviewed in 2019, the advice from the Government Actuary was in favour of the adoption of a dual rate as this was likely to achieve fairer outcomes for both claimants and compensators. The Government, however, stopped short of adopting a dual/multiple rates model at that time, noting a need to consult and to seek further evidence from a variety of experts.
We approach the 2024 review against a backdrop of inflationary pressures and specific issues experienced by one sector – care. This sector has been impacted by a combination of Brexit, compulsory vaccinations and rising levels of sickness amongst the general labour force, leading to staff shortages and spiraling care costs.
The Government paper released on 11 September 2023
This paper documents the range of responses to the 23 questions it posed back in January 2023. 65 responses were received in total which included 23 (35%) from insurers and re-insurers.
In several instances, there are different approaches expressed even amongst certain groups – for example, amongst defendants or claimant lawyers/representatives. Although the paper does not provide detail on the number of respondents who shared a particular view, it does provide a broad steer on the key issues and dividing lines which will need to be resolved by the independent panel of experts and form part of their recommendations to the Lord Chancellor.
The preferred model if a dual/multiple rates model is adopted?
The preference of defendants’ representatives is for a “switched” model, similar to the model adopted in Ontario (Canada), which is based on duration with the removal of ‘the margin of prudence’ currently applied by the Lord Chancellor. It proposes a “switching” point at 10 to 15 years.
Whilst claimant groups articulated that a single rate is less complex and often results in faster response times, their preference, if a dual/multiple rates model were to be adopted, would be for a blended approach to “avoid cliff edges”. Their opposition to the Ontario model sits around complexity and how that could result in ‘issues with agreeing settlement’. Claimants (generally) felt that the optimal switching point is somewhat later than that proposed by defendants - at 18 to 25 years, articulating the reason as ‘low and volatile investment returns’.
Should short term rates be set at a lower rate with long-term rates set at a higher rate and when should future reviews occur?
Defendants stressed the need for the rates to be set on investment evidence, not assumptions and that both short and long-term rates should not be set more frequently than currently (five-year intervals) as it is felt that impending reviews engender a reluctance to enter settlement agreements.
Claimant lawyers underlined the need for any short-term rates to be variable to account for changing returns in lower risk investments, suggesting either an annual review or a review if the rate moves by more than 0.5%.
The benefits of dual/multiple rates
Both claimant and defendant groups appear broadly in agreement that such a move will ensure that ‘short term claimants’ are better protected than at present. Defendants also expressed the view that a long-term rate would allow for returns rising over time and negate the need for the addition of the Lord Chancellor’s ‘margin of prudence’. The view of an economist who responded to the consultation was noted:
“the case for a dual rate is strong and set out in the Government Actuary’s advice in 2019”.
The disadvantages of a dual rate
Claimants felt that dual rates could prejudice younger and more seriously injured claimants, increasing the risk of under-compensation, potentially leading to “cliff edges” in addition to a complexity of calculation. Defendants saw the main disadvantages to be an increase in complexity, uncertainty, delays and cost.
Would a dual rate deliver a fairer outcome for claimants?
Although far from unanimous in approach, there was recognition by both claimant and defendant representatives, that a dual rate should deliver a fairer outcome for ‘short term claimants’ and this benefit would be greater than “any worse outcomes for long term claimants” – the view expressed by some, was that some long-term claimants were at greater risk of running out of funds.
Defendants felt that a dual rate would improve outcomes for both short and long-term claimants.
A multiple discount rate based on heads of loss?
The adoption of the Irish model, which has rates set against individual heads of loss, was noted to have the flexibility to better tailor the PIDR to the needs of claimants and protect against future earnings inflation or adverse market conditions – for example, those claims which involve a large future care costs element. There was, however, a recognition amongst some claimants’ representatives that this would be even more complex and delay settlement, even if it created fairer outcomes.
Defendants’ representatives opposed multiple rates for several reasons – increased complexity, settlement times and cost and because it was likely to result in increased satellite litigation.
Periodical Payment Orders (PPO’s)
PPO’s can be paid in combination with, or as an alternative to, a lump sum award. In the January consultation document, the Government stated an interest in exploring how PPO’s could be used more widely, given that in practice they are rarely used outside claims made against the NHS and Motor Insurers’ Bureau. Claimant representatives were in favour of encouraging greater take up of PPO’s ‘as they reduce uncertainty for claimants’, but did not unanimously advocate a different rate to be applied to PPO’s to incentivise their use.
Defendants remain (strongly) against incentivising PPO’s, with their views coloured by the uncertainty as to the final settlement figure and the uncertainty of reserving for earnings indexed to an annual payment over a lifetime, together with high ongoing monitoring and administration costs.
Commentary
The Government has made clear at all times that it has no stated preference for a dual/multiple PIDR over a single rate or for a dual rate over a multiple rate. It has, however, approached the consultation fully cognisant of the Government Actuary’s recommendation (in 2019) in favour of a dual rate.
The recognition by (some) claimant representatives that a dual rate would favour ‘short term claimants’ alongside the strong support of defendant representatives and an economist mean that a dual rate PIDR stands a realistic prospect of being recommended by the independent panel of experts advising the Lord Chancellor in 2024.
Whilst a view was articulated that multiple rates or rates specific to heads of loss and/or just care and case management costs may result in more precise financial outcomes for claimants, the added complexity, time and cost may negate the advantages of ‘precision’ in the views of the panel. Intense consideration will also be given to:
- If a duration-based dual rate model is adopted, whether and when the “switchover” between lower and higher rates will commence
- Whether a blended rate will be adopted in place of lower and higher rates
We will report future developments with interest.
Personal Injury Discount Rate update: Experts appointed to Panel
This was first published 27/06/2023
The Lord Chancellor has today (27 June 2023) announced that the Personal Injury Discount Rate (PIDR) Expert Panel will comprise four members who will sit, alongside the Chair, Martin Clarke, the Government Actuary; Charl Cronje (actuary), Donald Taylor (managing investments), Dr Rebecca Driver (economist) and Edward Tomlinson (consumer matters relating to investments).
The Panel will convene for its first meeting in July – both the minutes of this and subsequent Expert Panel meetings will be published and can be accessed on the GOV.UK Guidance page.
The PIDR is a percentage figure used to help calculate how much Defendants have to pay damages to Claimants in serious Personal Injury cases when the damages are paid in the form of a lump sum. It is the duty of the Lord Chancellor under The Damages Act (1996), to set the PIDR.
The Civil Liability Act (2018) amended The Damages Act to include a double stipulation; that a review must be conducted every 5 years and that an Expert Panel must be established and consulted for each review.
Further updates will follow as the consultation progresses. Watch this space.
Will specialises in large loss and technical claims. He acts mainly for MIB, Zurich, AXA Corporate Solutions and Travelers and deals with a whole range of catastrophic injury claims. Will is a member of FOIL and a representative on their specialist Catastrophic Personal Injury group.
Emerson has dealt with large loss cases since 1996 and is currently a specialist large loss handler working with Co-op Insurance for whom he is Weightmans’ principal point of contact on catastrophic injury claims.
