On Tuesday of this week, the Ministry of Justice began the process of passing whiplash reforms and changing the Ogden discount rate by introducing draft legislation in the House of Lords.[i] Lord Keen of Elie presented a Bill to make provision about whiplash claims and the personal injury discount rate. We previously discussed the Civil Liability Bill and the discount rate consultation in edition 221 (here).
Outside of the Civil Liability Bill, the Government will also be increasing the small claims limit from £1,000 to £5,000 for whiplash claims and £2,000 for all other personal injury claims, by amending the Civil Procedure Rules. The Government has confirmed that April 2019 is the agreed date of enforcement of the Bill, as outlined in a meeting with the Motor Accidents Solicitors’ Society (MASS), the Association of Personal Injury Lawyers (APIL) and the Law Society, in February of this year. We reported this in edition 219 (here).
The Justice Secretary has announced further details of revisions to the personal injury discount rate,[ii] which currently stands at (-)0.75%. As yet, it has not been revealed whether the new rate will be between 0% and 1%, as estimated by the Ministry of Justice (MoJ) in September of 2017.
However, it has been reported that the rate will be influenced by rates of return on a ‘low risk’ diversified portfolio of investments, as opposed to ‘very low risk’ investments, which will shift the percentage up, rather than down[iii]. If changes to the discount rate go ahead as planned, review of the rate will be conducted every three years, led by an independent expert panel and chaired by the Government Actuary, while the HM Treasury will remain a statutory consultee. The Government accepts that the setting of the discount rate is ‘not a precise science’,[iv] but the Government Actuary’s department has calculated that average awards may exceed the expected return by around 35% at present (20-25% post-tax).
On the same day as this announcement, the MoJ released a response to the House of Commons Justice Select Committee’s report, by stating that, although the Government’s rationale was ‘not fully comprehensive’:
‘Evidence demonstrates that claimants do not invest as the present law assumes and that they use diversified low risk portfolios. There may be limits to the amount of evidence that it is realistic to be collectable … however, the evidence that has come to light is clear and convincing as to the case for change and strongly supports the need for the new framework.’[v]
Law Society President, Joe Egan, has since stated:
‘The Law Society does not accept that this legislation is necessary and we continue to oppose these reforms’.
By contrast, the reaction of defendant representatives to news on reform has been positive.
UK Chief Executive of Ageas, Andy Watson, has said that the level of risk, attributed to lump sum payout investment, is ‘more accurate’ and further advised:
‘It is important now that the Bill progresses quickly, the panel put in place as outlined in the consultation and the discount rate revised accordingly’.[vi]
UK and Ireland Chief Executive of AXA, Amanda Blanc, stated that the ‘fair’ and ‘transparent’ plan for the Ogden rate ‘strikes the right balance between under and over compensation’. On whiplash reforms, she went on to predict that it:
‘... will drive the worst behaviour out of the market, protect honest motorists, reduce the cost of insurance and we of course commit to passing on savings to every motor customer’.
Elsewhere, Director General of the Association of Business Insurers (ABI), Huw Evans, said:
‘This Bill will ensure people in England and Wales receive fair compensation while reducing excess costs in the system ... The sensible new framework proposed for the personal injury discount rate would also deliver a system that is fair for customers, claimants and taxpayers. It is now important that parliament agrees these proposals swiftly ...’
In a joint letter, co-ordinated by the ABI, the Chief Executives of 26 insurance companies (Acromas, Admiral, Ageas, Aioi Nissay Dowa, Allianz, Aviva, AXA, CNA, Co-operative Insurance, Covea, Direct Line, esure, First Central, Hastings, LV=, Markerstudy, MS Amlin, NFU Mutual, Police Mutual, RSA, Sabre, Salvation Army, Swiss Re, Tesco, XL Catlin and Zurich), representing 86% of the motor market, have committed to passing on savings, calculated at £81 million,[vii] to customers.[viii]
Nevertheless, the MoJ has not explained how it would monitor and enforce such commitments.
The Draft Bill can be found here.
[i] John Hyde, ‘MoJ unveils sweeping PI reform in expanded Civil Liability Bill’ (20 March 2018 Law Gazette) <https://www.lawgazette.co.uk/news/moj-unveils-sweeping-pi-reform-in-expanded-civil-liability-bill/5065355.article> accessed 20 March 2018.
[ii] David Gauke, Justice Secretary unveils new bill to cut car insurance premiums’ (20 March 2018 Ministry of Justice) <https://www.gov.uk/government/news/justice-secretary-unveils-new-bill-to-cut-car-insurance-premiums> accessed 21 March 2018.
[iii] Neil Rose, ‘The clock starts ticking – Gauke publishes Civil Liability Bill’ (20 March 2018 Legal Futures) <https://www.legalfutures.co.uk/latest-news/the-clock-starts-ticking-gauke-publishes-civil-liability-bill> accessed 20 March 2018.
[iv] Dan Bindman, ‘Government brushes aside MPs’ discount rate change caution’ (21 March 2018 Litigation Futures) <https://www.litigationfutures.com/news/government-brushes-aside-mps-discount-rate-change-caution> accessed 21 March 2018.
[v] John Hyde, 'Clear and convincing' case for discount rate change – MoJ’ (20 March 2018 Law Gazette) https://www.lawgazette.co.uk/news/clear-and-convincing-case-for-discount-rate-change-moj/5065363.article> 21 March 2018.
[vi] ‘Government announces Ogden, whiplash reform programme’ (20 March 2018 Legal Futures) <https://www.insurancetimes.co.uk/government-announces-ogden-whiplash-reform-programme/1426664.article?guid=3b0b6fc1-2346-4494-ac0e-7b20af2c1460&utm_source=Adestra&utm_medium=email&utm_campaign=18532> accessed 20 March 2018.
[vii] John Hyde, ‘Claimant lawyers will lose £81m a year as insurers pocket huge windfall – MoJ’ (22 March 2018 Law Gazette) <https://www.lawgazette.co.uk/news/claimant-lawyers-will-lose-81m-a-year-as-insurers-pocket-huge-windfall-moj/5065399.article> accessed 22 March 2018.
[viii] Neil Rose, ‘Insurers and claimant lawyers clash over impact of Civil Liability Bill on motor premiums’ (21 March 2018 Legal Futures) <https://www.legalfutures.co.uk/latest-news/insurers-and-claimant-lawyers-clash-over-impact-of-civil-liability-bill-on-motor-premiums> accessed 21 March 2018.