Personal injury claims reform gathers pace

The Ministry of Justice announced on Tuesday 20 March 2018 their intention to proceed with the Civil Liability Bill which mainly looked to implement reforms to low value personal injury claims (especially whiplash claims) and the method of calculation of the discount rate. The expected implementation date is April 2019.

The reforms to low value personal injury claims will raise the small claims limit for road traffic accident claims to £5,000 and for all other claims to £2,000. This will mean that there no legal costs will be recoverable for those claims and as a result injured claimants will have in general will have to make claims without legal representation. There will also be measures to reduce the level of damages paid for whiplash injuries by reference to a tariff system. The levels of damages will be much lower than currently awarded. This is all against a background that the level of whiplash cases has been steadily reducing since the introduction of the Jackson costs reforms in April 2013. The Ministry of Justice’s research indicated that £32 million will be saved by insurers from claims which no longer proceed (because claimants do not wish or are unable make claims without legal assistance) and claimant personal injury firms will lose £49 million in revenue. The whole basis is that the insurance industry will save significant sums and that this will be passed onto consumers with reductions in the levels of premiums. The writing has been on the wall for low personal injury claims for some time. If any firms continue to rely on those claims as their main work source then their viability will be seriously tested.

As a catastrophic injury lawyer, my focus has been on the proposed reforms to the calculation of the discount rate. The personal injury sector has had to deal with significant uncertainty since the rate was reduced from 2.5% to minus 0.75% in March 2017. As soon as the new rate was announced the Ministry of Justice confirmed that they would undertake reform to change the way it was calculated. Practitioners on both sides of the claimant and defendant divide have been left dealing with the uncertainty of not knowing what the rate could be at the time of settlement or trial. A claim for future loss could be reduced by as much as 35% with a rate change from minus 0.75% to say 1%.

The Ministry of Justice consider that research shows that the current rate is leading to over compensation as claimants do not invest as the law assumes they do. That contention ignores the views of the select committee who say that their needs to be more proof and research before reaching this conclusion.

In my view the Ministry of Justice’s rationale for the reform is flawed. Historically injured claimants have had to ensure that their settlements last for life and they have had to deal with two significant obstacles in achieving this. Firstly, that it was assumed for many years they were able to obtain a risk-free rate of return on their settlements of 2.5% per annum. Secondly, that their settlements do not take into account inevitable inflationary increases in the costs of their care packages and other needs for example aids and equipment. A claimant would be starting at a disadvantage and would have to invest more aggressively to try and ensure they have enough money to meet their ongoing basic needs.

The basis and the speed of the reforms to the calculation of the discount rate are in my view motivated to placate the insurance industry who have had to pay significant additional funds to injured claimants since the rate was reduced.

The proposed reforms are what were announced last year. Claimants will be assumed to be “low risk” rather than “very low risk” investors. The rate will be reviewed every 3 years by an independent expert panel. The reforms are expected to result in a rate increase to 0.5% or 1%.