If you’ve been injured in an accident or medical negligence scenario, you might not like the sound of the this. Nor do we.
At Ringrose Law, we are dealing with 100’s of seriously injured individuals pursuing a personal injury or medical negligence claim to compensate them for their injuries and associated financial losses. Quite often, compensation for seriously injured claimants includes provision for their future financial needs, such as loss of earnings, which is calculated by using a percentage figure known as the “Personal Injury Discount Rate.”
If we look at road traffic accidents by way of an example, every death or serious injury on the road is preventable, yet in 2023, according to figures from the Department of Transport, 28,967 people were seriously injured and 1,695 people were killed. These alarming figures demonstrate the importance of taking steps to highlight the crucial issue of road safety. We are yet to see the figures for 2024, however, it will be surprising if there is any marked difference and it is highly likely that the numbers will reflect those in 2023.
Many individuals who suffer serious injuries are in that position through no fault of their own and their injuries often leave them with life changing consequences, such as having to stop working, or leaving them needing round the clock care from friends or family members.
What is the personal injury discount rate?
The Personal Injury Discount Rate is an important mechanism in fulfilling the longstanding common law principle that when someone is wrongfully injured, they receive full damages, including for their future financial needs.
This is in keeping with the principle set out in the case of Wells v Wells (2002), which stipulated that the aim of damages for future losses is “to place the injured party as nearly as possible in the same financial position he or she would have been but for the accident.”
Essentially, the personal injury discount rate reflects the likely rate of return on an investment made by claimants who receive a lump sum compensation payment to cover future financial losses, such as loss of earnings, care, and treatment. The higher the discount rate, the lower the compensation the Claimant will receive to cover his or her future financial needs and vice versa.
A worked example of how the discount rate works.
The Personal Injury Discount Rate is now set to increase from -0.25% to 0.5 percent and this change will be effective from 11th January 2025. This change will benefit insurers only, as our example will show.
A 35-year-old seriously injured Claimant, who has a future loss of earnings of £35,000 per annum, and who would have retired at 68, under the current discount rate, would have a current multiplier (a figure used to calculate future losses) of 33.13. £35,000 per year multiplied by 33.13 would give a loss of earnings compensation figure at £1,159,550. The incoming discount rate of 0.5 percent gives a lower multiplier of 29.37. Multiplying this Claimants £35,000 annual future losses by the new multiplier (29.37), gives a future loss of earnings compensation figure of £1,027,950, which is clearly less advantageous to the Claimant. It also means that the defendant insurer will make a saving of £132,200.
What do we advise?
The new discount rate means that those with catastrophic injuries and those Claimants who have significant future needs will receive less money to pay for necessary goods and have less money to cover their future losses.
Whilst our expert team at Ringrose Law will make sure the best possible compensation outcome is achieved, we always recommend that Claimants should also take specialist financial investment advice to ensure the right decisions are made to meet the cost of their needs in the long term.
Ringrose Law are an award winning firm and extremely experienced in dealing with all types of accident and medical negligence claims, providing an excellent service to best support our client’s.