Imminent change to Northern Ireland discount rate announced

In a letter to stakeholders yesterday, the Department of Justice announced a significant development relating to the review of the personal injury discount rate in Northern Ireland.

Rather than allowing the planned Damages (Return on Investment) Bill to pass through the Assembly as planned (before setting the rate), the Department are proposing that secondary legislation should be used to change the discount rate under the current Wells v Wells framework, and introduce an amended discount rate of minus 1.75% from 31 May 2021.

Background

In our previous article, we considered that one of the first actions of the new Justice Minister following a three year break during which Northern Ireland had no Government, was to propose changes to the discount rate in Northern Ireland.  In doing so, we noted that any review of the legal framework would require primary legislation and that implementation of any proposed reform would take some time, and would follow a public consultation. The Justice Minister committed to not changing the discount rate under the current Wells V Wells framework, until such time as primary legislation could be passed through the local assembly (and following a public consultation).

However, in an unexpected development, the Department of Justice has undertaken somewhat of a ‘U-turn’ in its approach. The Justice Minister has written to stakeholders to advise that because of the “significant change in the expected timescale within which a stable, longer term rate can be set under a new framework”, the Department reviewed its previous decision not to change the rate under the current format.

Instead, the Justice Minister will now bring forward secondary legislation to change the rate under the current framework to minus 1.75%.

The proposed date for the new rate coming into operation is 31 May 2021.

In our response to the public consultation, we set out a number of issues which would arise from the proposed change to the rate. These perhaps unintended consequences risk impacting not only insurers, but insurer parties, and the wider public (for more details please see here).

Impact

The impact of this latest development on large loss cases including catastrophic injuries and medical negligence cases is going to be immediate and significant.

We anticipate that:

  • Reserves in large loss cases will need to be reviewed, and in some cases significantly revised upwards.
  • Claimant’s solicitors will be unwilling to settle claims until the new rate comes into effect.
  • Alternatively claimant solicitors will want the new rate applied to any settlement reached before the rate is effective.
  • Accountancy reports will need to be updated.
  • Cases currently listed for trial may be subject to adjournment applications.
  • Overall there will be a delay in cases progressing to resolution and significantly increased reserves and settlement figures.


While the Department of Justice has taken this step to create certainty around the discount rate, we query if there will remain some uncertainty given the Damages (Return on Investment) Bill will still need to go through the Assembly, and once passed, the rate will then need to be reviewed under the new arrangements.

Next steps

Unless there is a legal challenge the new rate will come into effect on 31 May 2021. This is without the benefit of the rigours of debate and consideration applied to primary legislation.

Insurers should ensure that currently litigated and non-litigated claim reserves are reviewed as soon as possible, and consideration may be given to defence accountancy evidence in some cases.

Read other items in Occupational Disease Brief - April 2021