The UK government's decision to call a general election could delay reform of the discount rate applied to lump sum personal injury compensation payments, an expert has warned.

A new discount rate of minus 0.75%, down from 2.5%, came into force on 20 March in England and Wales and 28 March in Scotland, following an announcement in February by lord chancellor Liz Truss. The change effectively increased personal injury compensation awards in order to reflect assumed loss of value.

At the end of March the UK and Scottish governments announced a consultation seeking views from stakeholders about issues such as how often the rate should be reviewed, whether it should be set by the government and Scottish ministers, and the principles guiding setting the rate. The consultation was due to close on 11 May.

Insurance law expert Alexis Roberts of Pinsent Masons, the law firm behind Out-Law.com, said: "Courts have started applying the new personal injury discount rate and the impact has been significantly increased compensation awards for claimants."

"Given there is serious concern within the insurance industry that the underlying method of calculation of the rate is 'flawed', the consultation about how it should be set in the future is hugely important. No doubt the insurance industry will press for the consultation process to be taken up again quickly once a new government is in place," he said.

When the rate change was announced Roberts said it would mean a "significant increase" in the cost of claims for insurers, leading to an increase in motor and liability premiums for customers.

Last week Association of British Insurers director general Huw Evans said the delay caused by the election could help the insurance industry to lobby for improved legislation, following the introduction of the Prison and Courts Bill in February which includes proposals on whiplash claims. Evans said the Bill would have to be reintroduced following the election.

He added: "As the government's discount rate consultation does not close until May 11 anyway and the scope of the currently tabled whiplash proposals is full of loopholes, our industry should view this as an opportunity to win the argument and get the right Bill, rather than proceed with a flawed one."

The aim of the discount rate is to ensure that the amount of compensation received by an injured person reflects the interest they would expect to earn if they invested a lump sum payment. It is linked to returns on the lowest-risk investments and the most recent rate was calculated based on a three-year average of yields on index-linked gilts. Before the February 2017 recalculation the discount rate had last been set in 2001. 


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