The High Court has rejected the Association of British Insurers (ABI) call for an injunction to halt the Government announcing the outcome of the discount rate review by 31 January 2017.
The ABI argued the Government needs to change the methodology of the review before a decision is made on whether to change the discount rate. The review is based on the assumption claimants invest in Index Linked Government Stock (ILGS) and as the yield on ILGS has been declining and routinely falling under 1%, the discount rate needs to fall to match. However, in reality claimants use higher return investment vehicles and the decision to review the discount rate is based on a misunderstanding of how people invest their compensation.
Despite consulting over three years, the Lord Chancellor has not shared any of the findings of the expert panel it convened, or of the two public consultations in 2012 and 2013.
The ABI have sought permission to appeal from the Court of Appeal which will be heard by 31 January and the Lord Chancellor has undertaken not to make an announcement on the outcome of the discount rate review before this date.
Whilst the Lord Chancellor's decision to not make an announcement until after the ABI's appeal is heard has been welcomed by the ABI, they have called for the Lord Chancellor to provide a considered timeline which gives all stakeholders the opportunity to engage in a constructive dialogue on the way forward.
If the methodology for calculating the rate is not amended it is likely the discount rate will be reduced to reflect current return on investments, which will increase the value of claims for future losses and accordingly the total costs of claims.