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Significant Changes Proposed Will Affect Many Injured Claimants: Discount Rate And Whiplash Planned Reforms

By Associate, Personal Injury

Significant Changes Proposed Will Affect Many Injured Claimants: Discount Rate And Whiplash Planned Reforms

The government has recently proposed new far-reaching reforms to personal injury claims this year, which will affect many claimants from those with short-term injuries to those with significant and catastrophic long lasting injuries.

Personal injury claims are intended to help those who are injured and vulnerable seek fair and reasonable compensation, in order to put them as far as possible back into the position as if the accident had not occurred. For some severely injured people with life-changing injuries that is not possible. In these cases, personal injury lawyers can help support recovery and achieve compensation to help meet reasonable and sometimes lifelong needs.


Change in The Discount Rate

For those suffering long term or life changing injuries, the discount rate is to calculate deductions from their compensation awards to reflect the interest those awards are assumed to earn on investment.

The rate has been unchanged for 17 years and therefore there has been increasing call for review by claimant lawyers and APIL. This should be set against a backdrop of the 2008 financial crisis and the bank of England base rate which is now just 0.25 per cent. The upshot has been that injured people with significant future needs are unable to invest the capital they receive to achieve the expected returns that were calculated for them 17 years ago. The discount rate applied in personal injury cases was deemed too high and therefore unjust.

Lord Chancellor Liz Truss announced in February 2017 that the discount rate will be reduced from 2.5 to -0.75 per cent. She explained: “The discount rate was last set in 2001, when the then Lord Chancellor, Lord Irvine of Lairg, set the rate at 2.5 per cent. This was based on a three-year average of real yields on index-linked gilts. Since 2001, the real yields on index-linked gilts has fallen, so I have decided to take action.

“Having completed the process of statutory consultation, I am satisfied that the rate should be based on a three-year average of real returns on index-linked gilts. Therefore I am setting it at minus 0.75 per cent.”

The statutory instrument has now become effective. By lowering the discount rate, this vastly improves long-term financial stability for seriously injured claimants to meet their needs whether for a few years or lifelong.

The insurance industry strongly dispute this change and state that premiums will rise. Despite having gone through an exhaustive consultation process over the past four years, Ms Truss said the government intended to review the framework under which she set the rate “to ensure that it remains fit for purpose in the future”. A further consultation process has started to review the framework and consider further options for a reform, which may see the rates change again.


Whiplash Reforms

The second proposed change in the personal injury sector is part of the Prisons and Court Bill. The Bill will make fundamental changes to personal injury litigation but also to the court system. The government stated its commitment to “tacking the high number and cost of low value RTA (road traffic accident) related soft tissue injury claims, the vast majority of which are whiplash claims”.

It was announced that the small claims track for all other types of personal injury claims will be increased to £2,000.00 “in line with inflation”. However the small claims limit is to be increased to £5,000.00, specifically in road traffic accident (RTA) personal injury cases. This has significant implications for those who are injured and the court system. In the small claims track, the court will not order legal costs to be paid by the losing party. This means that successful party must generally pay their own costs and for this reason, many claimants deal with small claim without the help of a solicitor. In contrast, in cases assigned to other tracks, the successful party would normally expect to recover cost from the losing party.

The proposed ban on making premedical offers of settlement is welcomed by lawyers on behalf of claimants as early offers potentially lead to under settlement in claimant’s cases if they have not yet made a full recovery or if any future impact has not yet been considered.

In addition fixed tariff compensation is proposed for whiplash injuries sustained in road traffic accidents (from £225 to £3,725), depending on injury duration. The judiciary will be able to apply a discretionary uplift of 20 per cent in exceptional circumstances, which are not defined. This leaves more uncertainty.

On a positive note, there will be a ban on making, soliciting, accepting and receiving of offers to settle claims without medical evidence in road traffic accident related whiplash claims only. The proposed ban on making premedical offers of settlement is welcomed by lawyers on behalf of claimants as early offers potentially lead to under settlement in claimant’s cases if they have not yet made a full recovery or if any future impact has not yet been considered.

This would all come into effect on 1 October 2018 and requires both primary and secondary legislation.

Claimant lawyers agree that any fraudulent whiplash claims should be tackled, but they represent a tiny percentage of all soft tissue claims. The vast majority of claimants claiming compensation for injuries sustained through no fault of their own are entirely genuine. There is considerable concern therefore that these proposed reforms unfairly discriminate, are generalised and do not allow victims access to justice. These proposals would undermine the right of people from across the income and social spectrum to receive full and proper compensation from those who have injured them.  

Genuine victims must be protected and not discriminated against because of a certain type of injury. All injuries are significant even if minor and can have a great impact. Examples of injuries most people would not dismiss as “minor” under £5,000.00 are for example fractured collarbone, broken wrist and fractured ribs.

Furthermore, the planned fixed compensation tariff proposal does not address that the same ‘minor’ injuries can affect people differently. For example a 20-year-old fit person may recover quickly whereas the consequences are usually more serious for a 75 year old with the same injuries.

A concern is that the planned reforms will mean that victims injured as a result of a road traffic collision could be potentially in a less favourable position than those injured by different means, for example a cyclist injured as a result of a defective road surface, or in an accident at work.

The implications of the planned reforms extend far beyond whiplash claims by car occupants. Vulnerable road crash victims will include pedestrians and cyclists.

Liability and negligence is often disputed in personal injury claims and therefore the claims are not necessarily simple and straightforward. Expert medical evidence is required for an opinion on the injured person’s injuries and prognosis for their recovery. In raising the small claims limit, more vulnerable people will be left without legal or court support. 

There is still some debate about whether the cost of motor insurance premiums will rise or fall as a consequence of both the discount rate and the soft tissue proposed reforms or as a result of other unrelated factors.

In the end however as a claimant lawyer, we want justice for all victims. If you are injured as a result of another person’s negligence, you deserve to be fairly compensated at the right level and at the right time, whether your injuries are minor or catastrophic and life changing.