Dual or multiple discount rates: 12 weeks to put views to Ministry of Justice

Articles in December and our short podcast of 6 December set the scene for the MoJ’s call for evidence in relation to options for dual or multiple personal injury discount rates (PIDR), which was published today. It was accompanied by a brief written statement in Parliament by the Civil Justice Minister, Lord Bellamy. The main quote here is of how he frames the purpose of this exercise. 

The minister’s words and the published document both take great care in positioning this as a genuine exploration of options and views. It should not be interpreted as indicating that the Ministry is expressing any preference for duals PIDRs as opposed to the single statutory rate which is currently in place.

The issues aired in the call for evidence, and in the 23 questions posed, are very much as expected given the structure and content of the MoJ’s stakeholder meetings late last year (we posted the agenda slides for those meetings on the podcast page). The document first re-states the MoJ’s commitment to the 100% compensation principle - surely an uncontroversial point? - and goes on to explore, at a high level, the following:

  • advantages and disadvantages of single and dual/multiple PIDRs respectively
  • models for dual rates by duration of loss or by head/type of loss, outlining approaches in other key jurisdictions
  • some of the possible practical effects of moving from a single rate, such as training issues, systems changes, effect on compilation of actuarial tables, and, inevitably, the risks of increased delay, cost and adverse litigation behaviour that could be associated with the perceived complexity of departing from a single PIDR

The paper’s analysis of dual rates by duration of loss looks to us to be rather more developed than the section on different rates by head of loss. We suggest this is probably because the former had already been analysed in some detail by the Government Actuary in 2019 and because of experience of this sort of system in Ontario in particular. 

Responding to the questions set today by the Ministry is critical and will involve articulating views on the issues above. The composite elements of dual rates by duration (what rates and when to switch) should be explored, as should approaches to dual rates by head of loss. Responses may also involve delving deep into the detail of investment advice, behaviours and returns. Further, it will be important to put forward views and evidence on technical matters such as adjustments for inflation, tax & expenses and any margin for prudence.

The call for evidence will close on 11 April 2023 and the Ministry has committed to publish a synthesis of views in July. That will inform the statutory review of PIDR which is scheduled to commence in summer 2024 – there are no signs whatsoever that it might start any earlier.

We will be arranging further webinars, podcasts and in-depth discussions with insurance clients over the coming weeks to help with formulating responses to the Ministry. Please get in touch if you would like to be involved or, of course, approach any of your usual contacts in the Catastrophic & Large Loss Practice Group.