Scotland could become a target for forum-shopping personal injury claimants, insurers fear, after the Government Actuary proposed a lower discount rate for calculating damages awards than applies in England & Wales.
The discount rate is set to offset the effects of investment returns where claimants are awarded large sums that have to be invested to provide for future needs. Due to low investment returns the rate has gone negative in recent years. Revised arrangements for setting the rate were then put in place, but these differed north and south of the border.
In Scotland, the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019, requires the Government Actuary to prepare a report in accordance with requirements set out in the Act. Ministers are then bound to implement the rate recommended.
By a report published today, the actuary, Martin Clarke, recommends a continuation of the previous rate of –0.75%. In England, in contrast, the rate was amended to –0.25% in August. Applied to the same base award the respective rates would result in a higher payout in Scotland than in England.
Contrasting reactions, not surprisingly, were given by pursuers' and defenders' representatives. Welcoming the news, Gordon Dalyell, President of the Association of Personal Injury Lawyers, commented: "We welcome the certainty which this announcement will bring to injured people in Scotland and the transparency in the way the discount rate is calculated. People with catastrophic injuries, who are most affected by this, already have enough uncertainty in their lives. The fact that the calculation which governs the amount of compensation they will receive is set out clearly in legislation, and that political influence on the process is minimal, is very welcome in these times of economic and political uncertainty.
"Governments in both Westminster and Holyrood have faced shameless and sustained pressure from insurers to set the discount rate at a level which suits their profit margins rather than injured people, and the transparency of the Scottish legislation, in particular, is a protection against that.
"But the calculation is still based on the intention of making people take risks with the compensation which is to last their whole lives, which they should not have to do. After all, injured people are not ordinary investors trying to maximise a lottery win, and we must monitor this new rate carefully to ensure it provides them with the compensation they need."
The Forum of Insurance Lawyers, on the other hand, responded: "It is likely that we will now have different discount rates north and south of the border for several years to come.
"The lower Scottish rate means that Scottish claimants will receive higher compensation payments. The differential is therefore likely to result in injured people raising claims in Scotland rather than England & Wales if they can. It is feared that this forum shopping will cause delays and higher costs.
"The new rate is very disappointing for the insurance industry, which considers that the rate does not adhere to the principle of 100% compensation. This new rate artificially boosts compensation payments well beyond those being paid in the rest of the UK. As a result it is likely to mean increased costs which will have to be borne by Scottish taxpayers and policyholders."