The Justice Select Committee has published their pre-legislative scrutiny report of the discount rate legislation following their recent consultation.
The Committee accepts changing the assumptions made when setting the discount rate to more accurately reflect "real world" claimant investment behaviour is needed. However the report questions whether the Government has presented sufficient evidence concerning claimant investment behaviour and calls for further evidence in relation to this issue before the draft legislation is progressed.
The Justice Select Committee noted "The Government must clarify its aims, gather proper evidence about how claimants invest lump-sum damages and whether investment covers their future losses, and ensure adequate safeguards to prevent under-compensation of the most vulnerable claimants".
However, the report confirms there is a sound evidential basis for the rate being reviewed and set on a more regular basis, and supports the implementation of an expert panel to assist the Government in setting and reviewing the rate, but it's quorum should increase to four out of the five panel members.
In addition the Committee proposes that the Lord Chancellor publish their reasons for their decision when reviewing the rate, together with the advice of the proposed expert panel, and reasons where that advice is not followed. The report also notes that legislation should require the expert panel and the Lord Chancellor expressly to consider whether to set different discount rates for different periods of loss or different heads of damage.
This is likely to further delay the implementation of the proposals and insurers must ensure they continue to scrutinise any amendments to the legislation to ensure it achieves fairness when setting the rate and prevents claimants from continuing to be overcompensated.
Peter Walmsley, Head of Large Loss and Catastrophic Injury said:
"As a sat nav might say, there are delays on the journey but we're still on the quickest route. While this postponement is disappointing, the good news is that the government remains committed to review the Ogden rate.
Insurers will do their utmost to deal with the situation in a pragmatic manner. Clearly it will hamper their ability to plan ahead but they will continue to argue for a more realistic rate.
It can also be argued that the delay isn't necessary because evidence of claimant behaviour already exists."
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