There has been an important change to how severe personal injury claim settlements are calculated in Northern Ireland and this currently will result in the highest level of compensation payouts in the UK, if not the whole of Europe. This has implications for both the viability and competitiveness of the insurance market in NI and also the levels of cover people will have to buy to adequately protect themselves and their businesses.
Previous the compensation for serious personal injury claims included an adjustment for long terms care costs / loss of earnings to reflect regular investment income earned from the awards. As investment returns have collapsed, there has been moves across the various UK jurisdictions to adjust the old “discount rate” of +2.5% to ensure sufficient compensation is awarded for these long term costs.
It is important to note that this is a devolved matter and power rests with the Stormont Executive to legislate accordingly for NI. In England & Wales and also in Scotland there have been legislative changes made to reflect the lack of investment returns for claimants and whilst insurers haven`t been particularly happy, there is a general acceptance that this had to change to establish an equitable and just outcome for all concerned. The Scottish Government in Holyrood legislated for a slightly different rate than in England but both adjusted the rate to increase the level of compensation.
In NI, due to the absence of the Assembly sitting for several years and the failure of an earlier attempt by the Justice Minister to get legislation quickly through Stormont, we now find ourselves from 31st May 2021 with a new `default` discount rate of -1.75%. To illustrate this in practical terms, a 28 year old man with a serious injury requiring long term care would result in this aspect of his claim going from £1.5m to £5.2m. This would be substantially higher than awards for a similar injury in the rest of the UK. This now creates the situation where substantial over-compensation is extremely likely in NI and courts find themselves being unable to ignore the -1.75% rate currently in force until the legislators pass fresh law on the matter.
The Justice Minister Naomi Long MLA has introduced a further attempt to legislate for NI called the “Damages (Return on Investments) Bill”. This is currently in committee scrutiny stage and a report in due back in the Autumn to the Assembly. If the bill proceeds in its current form there is an expectation that this could become Law in early 2022. The discount rate will be determined and adjusted to ensure a fair and equitable calculation for these types of claims. It is important therefore that Stormont continues to sit and this bill comes before the House soon for our MLAs to vote.
Whilst many people will have little sympathy for insurers, the general public and businesses will be faced with increased premium costs and further lack of competition in the local market. Its fact that many insurers have a lukewarm appetite for our market and this will hurt competition and pricing of risk here further.
Businesses will need to buy higher policy limits to ensure they have enough cover. This is an additional direct cost.
Currently some claims are being settled on a compromise basis between the old rate and the new rate and solicitors for claimants seek to maximise their clients compensation and defence lawyers and insurers point in turn to the legislation currently in Stormont and seek to adjourn cases in the meantime. It is important therefore that certainty is achieved and that our MLAs scrutinise, debate and vote on the Bill.