The Lloyd’s Market Association (LMA) has called for major changes to the method for calculating the Personal Injury Discount Rate, used to determine the Ogden rate, claiming the Discount Rate being set by referring to Index Linked Gilts instead of balanced investment portfolios used by claimants, will lead to over-compensation.
The LMA expressed further dissatisfaction with having the Lord Chancellor alone set the rate, under powers granted by the Damages Act 1996.
David Powell, Non-Marine Manager at the LMA, said; “The Discount Rate should be based on a realistic investment vehicle, to make it more accurate, reducing the risk of over-compensation. We are suggesting using the average yield of a model low-risk portfolio, better reflecting what claimants actually do with their money.”
Offering a response to the Ministry of Justice’s consultation, the LMA has proposed an alternative process of having a model portfolio agreed by a panel of experts and published for transparency.
The proposal includes a regular review of the Discount Rate to reflect material changes in the underlying portfolio yield.
Powell added that “a new process would provide greater certainty and transparency, reducing the risk of unexpected and significant changes in the rate.”
In addition, to protect the industry from effects of short-term economic volatility, LMA proposes instituting limits on changes to the rate of just one change permitted per year, and a maximum shift of 100 basis points at a time.
