‘Thankfully we should see some stability in Ogden in the coming years’ – Admiral (5 March 2020).[i]
Thanks to the 3-year suspension of its Assembly (known as Stormont) and the fact that setting the personal injury discount rate (PIDR) is a devolved matter, Northern Ireland has not been subjected to rate fluctuation in the same way as England, Wales and Scotland.[ii]
As a result, the so-called ‘Ogden rate’ still stands at 2.5%, which is representative of the state of the UK economy when the rate was chosen, in 2001.
This may soon change, however, as no longer than 7-weeks after Assembly business resumed (on 11 January 2020), Northern Ireland’s Minister for Justice, Naomi Long MLA, invited officials to conduct a consultation (not public) into the PIDR, pursuant to the Damages Act 1996.
It is understood that the Government Actuary’s Department and the Department of Finance, tasked with conducting the consultation, will consider whether to revise the rate down to (-)1.75%. In a letter, dated 27 February 2020, Ms. Long explained that her proposal had been guided by:
‘… the significant decline in returns on investment since the rate was last set … and the need to ensure claimants are properly compensated’.[iii]
If the PIDR in England & Wales and Scotland are (-)0.25% and (-)0.75%, respectively, why is the rate recommended in Northern Ireland so low?
Quite simply, the 3-year Assembly hiatus has created a 3-year lapse on policy and it appears to be the case that Northern Ireland is mirroring action taken by Elizabeth Truss MP, back in February 2017, which brought about a negative discount rate in England & Wales (and Scotland shortly afterwards).
Why it would do so, however, is perplexing, given that the then Lord Chancellor’s decision was widely regarded as a political faux pas, forcing the Government into finding a new method for fixing the PIDR, i.e. not in accordance with the 1996 Act, which imported the House of Lords’ assumption, in Wells v Wells  UKHL 27, that claimants invest their lump sum damages in ‘very low risk’ index-linked Government gilts.
Under the Civil Liability Act 2018 (effective in England & Wales) and the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 (effective in Scotland), the PIDR refers to ‘the return that a claimant would reasonably expect to achieve if they invested in a “low risk” diversified portfolio’.
‘In due course’, but unfortunately not before the statutory consultation runs its course, ministers in Northern Ireland will consider whether it is appropriate to draft new legislation, replacing sections of the 1996 Act.[iv] Until then, however, it is predictable that future reviews will generate a rate which presupposes that claimants will obtain a lower rate of return than other devolved powers. Indeed, Matthew Fitzpatrick, of Horwich Farrelly, accepted that:
‘… with interest rate cuts, the prospect of a global recession and a myriad of other COVID-19 issues, a negative discount rate may well be viewed as a certainty by many’.[v]
Worked Ogden Calculation (Hearing Aid Batteries):
In order to gauge the extent to which the suggested decrease in PIDR could affect paying parties, let us consider a simple ‘loss for life’ example:
- Imagine that a 50-year-old male/female claimant, with ‘normal’ life expectancy, has developed noise-induced hearing loss (NIHL), due to the negligence of a former employer.
- The claimant’s sensory impairment is significant and they require a hearing aid.
- In order to power the hearing aid, they require batteries, at a cost of £65-per-year (the multiplicand).
In the table below, we calculate the lump sum value of this battery-related ‘loss for life’ claim in present day Northern Ireland and compare the cost against the value of a suppositious, identical claim, commenced in Northern Ireland (NI) after the PIDR has been updated (as anticipated) – multipliers for a potential (-)1.75% rate are based on estimates.[vi] For completeness, we include the value of this example claim in all UK jurisdictions.
By contrast, a Northern Irish male/female claimant of just 20-years-old, with ‘normal’ life expectancy, would receive around 425% to 450% more damages for pecuniary ‘loss for life’, under a (-)1.75% discount rate. Supposing that the multiplicand was less trivial, i.e. in the tens to hundreds of thousands of pounds for fatal and catastrophic injuries, it is foreseeable that insurers would need to make drastic changes to their reserves, especially as the PIDR employed will be the rate in force at the date of trial and not the date of the accident/onset of injury.[vii]
Could PIDR adjustment in Northern Ireland cause insurers to suspend the writing of policies, thereby increasing premiums and reinsurance costs? Could there be a rise in opportunistic ‘forum shopping’, as was conjectured in Scotland?[viii] And could many policy-holders be left underinsured, needing increased limits of cover (again resulting in premium rises)?
We will attempt to answer these questions in subsequent editions of BC Disease News, as this story continues to develop.
[i] Neil Rose, ‘Top insurers boost reserves by £100m due to discount rate’ (11 March 2020 Litigation Futures) <https://www.litigationfutures.com/news/top-insurers-boost-reserves-by-100m-over-discount-rate> accessed 24 April 2020.
‘Admiral Group plc announces a record Group profit before tax of £526.1 million for the year ended 31 December 2019’ (5 March 2020 London Stock Exchange) <https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/ADM/14448590.html> accessed 24 April 2020.
[ii] ‘NI Discount Rate’ (27 February 2020 Murphy O’Rawe Solicitors) <https://www.murphy-orawe.com/pages/index.asp?title=NI_Discount_Rate> accessed 24 April 2020.
[iii] Alison Cassidy and Alistair Kinley, ‘NORTHERN IRELAND'S DEPT. OF JUSTICE INDICATED IT COULD INTRODUCE A NEW PERSONAL INJURY DISCOUNT RATE OF -1.75%’ (2 March 2020 BLM) <https://www.blmlaw.com/news/northern-ireland-discount-rate-of-1-75-proposed> accessed 24 April 2020.
[iv] Sean McGahan and David Johnson, ‘-1.75% Discount Rate Proposed by Department of Justice for Northern Ireland’ (28 February 2020 DAC Beachcroft) <https://www.dacbeachcroft.com/en/gb/articles/2020/february/175-discount-rate-proposed-by-department-of-justice-for-northern-ireland/> accessed 24 April 2020.
[v] Clare Ruel, ‘Law firm fears detrimental impact of potential discount rate change in Northern Ireland’ (27 March 2020 Insurance Times) <https://www.insurancetimes.co.uk/news/law-firm-fears-detrimental-impact-of-potential-discount-rate-change-in-northern-ireland/1432982.article> accessed 24 April 2020.
[vi] ‘Lifetime multipliers following potential changes to discount rates’ (28 February 2020 Harbinson Mullholland) <https://www.harbinson-mulholland.com/assets/uploads/February_2020_Multiplier_card.pdf> accessed 24 April 2020.
The Stationery Office, ‘Actuarial Tables With explanatory notes for use in Personal Injury and Fatal Accident Cases (7th Edition)’ (2011 Government Actuary’s Department) <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/245859/ogden_tables_7th_edition.pdf> accessed 24 April 2020.
[vii] Matthew Fitzpatrick and Malcolm Henké, ‘Discount Rate in Northern Ireland may move from 2.5% to minus 1.75%’ (5 March 2020 Horwich Farrelly) <https://www.h-f.co.uk/knowledge/discount-rate-in-northern-ireland-may-move-from-2-5-to-minus-1-75/> accessed 24 April 2020.
[viii] ‘Kate Donachie: Scotland set to become first choice to bring personal injury actions’ (28 October 2020 The Scotsman) <https://www.scotsman.com/news/opinion/kate-donachie-scotland-set-become-first-choice-bring-personal-injury-actions-1404044> accessed 24 April 2020.