IUA comment on discount rate announced
The announcement of a new personal injury discount rate of minus 0.25% is a surprising and disappointing outcome for insurers, the International Underwriting Association has stated.
Dave Matcham, IUA chief executive, said: “The new methodology for calculating the personal injury discount rate promised to introduce a much fairer and more realistic assessment of investment strategies. This was widely expected to result in a figure of between zero and 1%, which indeed, was the indication given by former Lord Chancellor David Liddington in a statement to the House of Commons in September 2017, when the process of reform began.
“We have always supported a rate which fairly reflects the ‘100% compensation principle’, ensuring claimants are put in neither a lesser or more advantageous position than any ordinarily prudent investor favouring a low-risk investment approach. The Government’s statement today, however, indicates that a rate of minus 0.25% leaves a claimant twice as likely to be over-compensated than under-compensated.
“The likely effect will be to drive up the cost of insurance for policyholders across the market.”