The government will move the discount rate applicable to personal injury lump sum compensation payments to 0.5% from -0.25% as of 11 January 2025.The decision to set the rate at +0.5% means that the rates in force across all the UK are the same, with this rate also having been set in Scotland and Northern Ireland in late September.
What Does The Change In The PIDR Mean?
The PIDR is at the core of calculating compensation for future losses and needs in serious personal injury claims. So, if you buy motor insurance or Employers Liability or Public Liability where people get injured you should be aware that awards are affected greatly by this rate. Where compensation is made via a one-off lump sum, the PIDR is that part of the calculation which allows for future investment of the sums awarded.
The rate was previously set in 2019 and must be reviewed on a five-year cycle. The increase is driven by anticipated increases in investment returns.
How Will The Change In The PIDR Affect Customers?
The new rate means lower lump payments, but a slightly greater proportion of future needs will now be realised by investment returns than was the case under the -0.25% rate.
According to lawyers Clyde and Co…
“the lump sum award for lifetime care in the case of a 35-year-old female with an annual care need of £60,000 would be £2.8m under the new +0.5% rate, which compares to £3.4m under the previous rate of -0.25%”.
Will Insurance Premiums Fall As A Result Of The Change In The PIDR?
PwC calculated drivers in England and Wales will benefit from an average £50 cut in motor insurance premiums after the ruling. Motor premiums are starting to stabilise, so this is further better news for buyers. There is less certainty around Liability policy costs given the more individualistic pricing of these lines of business.
We have written numerous information pieces to our commercial insurance buyers about the discount rate because it materially effects the costs of insurance across motor and liability lines of business.
