Clock ticking on discount rate reform as Civil Liability Act receives Royal Assent

The Civil Liability Act 2018 has received Royal Assent, and under its provisions, the Lord Chancellor must start a review of the rate within 90 days. He must then determine the rate within 140 days of the review commencing, meaning that the latest he can set the new rate is 7 August 2019.

Law firm Kennedy’s is warning compensators to start preparing now for a new discount rate as it will come into force in less than eight months.

The rate is almost certain to change from the current -2.5% because the Act alters the way in which it is calculated. At present, the assumption is that claimants choose ‘very low’ risk investments for their damages; this will change to an assumption that they will select more risk than a very low level, but less risk than would ordinarily be accepted by a prudent and properly advised individual investor.

The Lord Chancellor must consult with both the Government Actuary and the Treasury as part of this process.

Deborah Newberry, head of corporate and public affairs at Kennedys, says reform to the discount rate is to be welcomed and it will in future reflect a real-world approach to how claimants invest their damages. Compensators, she says, will in turn be able to plan their reserves in a more realistic manner.

“We can expect a certain amount of tactical manoeuvring in the coming months ahead of a change in the rate, but at all times both claimant and defendant lawyers must bear in mind the importance of doing what is best for the client.!

Royal Assent is also another milestone on the road to whiplash reform, which the Ministry of Justice plans to bring into force in April 2020. Newberry adds: “The fight to ensure a proper balance in low-value personal injury claims does not end today, as regulations to be made under the Act will need to fill in crucial detail about how the new regime will work.

“The government needs to make sure that it does not leave open avenues for behaviours that seek to exploit the system and will create satellite litigation.

“There remains also the concern that claims management companies will look to take advantage of the new system. The Ministry of Justice and the Financial Conduct Authority – which takes over the regulation of CMCs in April 2019 – will need to stay alive to how the market changes so as to prevent fraud and claims farming.”

The Ministry of Justice’s call for evidence closes on 30 January 2019.

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