PIDR – The clock is ticking

The long-awaited review by the Lord Chancellor of England and Wales’ Personal Injury Discount Rate (PIDR) has commenced this week.

In one of her first tasks since the new Labour Government has been formed, Shabana Mahmood MP has started the formal review process. In accordance with the Civil Liability Act 2018, the rate must now be determined within 180 days or by 11 January 2025.

The Lord Chancellor will be assisted and advised by Fiona Dunsire (Government actuary) and experts, Charl Cronje (actuary), Donald Taylor (investment manager), Dr Rebecca Driver (economist) and Edward Tomlinson (consumer investments).

In a move that would be welcomed by insurers, there is much hope that the rate will be revised from -0.25% to a more favourable positive rate. What the exact figure will be and in which format is speculative at this stage. However, two calls for evidence have been undertaken and may give a clue as to the appetite of claimants and defendants; and determinations in similar jurisdictions may show a direction of travel.

In respect of the format of the rate, whilst a dual rate was given some consideration at the previous review in 2019, the outcome of the calls for evidence would suggest both claimants and defendants are lukewarm, at best, to such a proposal. Accordingly, a single rate may well be retained.

The Lord Chancellor and her panel are not bound by previous methodologies and assumptions, including proportion of portfolio in equities, growth assets and matching assets; allowance for tax and investment expenses; and allowance for survival beyond expectation of life, and so predicting the likely rate is challenging.

Weightmans recently hosted ex-Government actuary, Chris Daykin, and leading economist, John Llewellyn, to provide some further insight. In an event attended by many industry stakeholders, the experts set out the prevailing economic picture, a future forecast and the features that the Lord Chancellor will need to address in setting the rate.

The experts explained that a 100% compensation principle approach based upon current UK index-linked gilts would give a rate of approximately +0.9% for awards of £5 million or less. However, allowing for earnings inflation on care, the rate could drop to -0.6%, or with damages inflation of 1%, the rate would be around 0%. Which factors the Lord Chancellor gives most weight to remains to be seen.

Encouragingly, the Isle of Man’s PIDR rate moved from -0.25% to +1% in November 2023, and the Republic of Ireland, last week, confirmed that their dual rate will remain at +1% (care) and +1.5% (financial losses). Conversely, the GAD has advised Scotland and Northern Ireland to increase their allowance for tax and management to 1.25% (currently 0.75% on the England and Wales methodology).

All things considered, the experts could be drawn so far as to predict that the likely rate will fall somewhere between 0 and +2%. A welcome relief for insurers.