A decision by the Lord Chancellor, Elizabeth Truss, to lower the Discount Rate when calculating compensation should see compensation payments rise for sufferers of asbestos-related disease.
When the amount a person receives from a compensation payment is calculated, it is adjusted according to the interest they can expect to earn by investing the lump sum payment. This is called the Discount Rate.
Craig Howell, asbestos specialist and a partner at Birchall Blackburn Law, says: “The change to the Discount Rate is welcome but overdue. We’ve felt that industrial disease and asbestos-related claimants who have had future loss claims have been undercompensated. The people we work for face devastating and debilitating lung conditions and deserve a fair financial settlement.”
The Discount Rate is linked in law to the percentage returns on lowest risk investments, which is usually Index Linked Gilts. Contrary to the public’s perception of compensation, the lump sum should be carefully invested to ensure that the victim has the financial help and support they will need after developing an asbestos-related disease, such as mesothelioma, lung cancer, asbestosis and pleural thickening.
There is a need for longer-term financial support to provide high quality care even in cases of mesothelioma and lung cancer because research and treatments are always improving.
The law is clear that claimants must act and be treated as risk-averse investors. This reflects the fact that they are financially dependent on the compensation lump sum to secure their future. Compensation is meant to give the person the same financial security as if they had not been seriously injured, which includes loss of future earnings, pension income and care costs
The Discount Rate has not been changed since 2001 when it was based on a three-year average on Index Linked Gilts. The interest rate in 2001 was much higher than it is now, especially since the 2008 Credit Crunch, so the Discount Rate should have been much lower for some years. The Association of Personal Injury Lawyers (APIL) made a judicial review application in 2011 to attempt to promote a change in the rate but it has taken another six years to see that change.
From today (March 20, 2017) the Discount Rate will be lowered from 2.5% to minus 0.75%.
Craig says: “We’re pleased that the change will benefit our clients with much higher future loss claims. It’s long overdue. It is good news for their future care and can make a real difference to their quality of life. Asbestos-related diseases have a serious impact on a person’s life and their families. Proper compensation is vital to pay for care workers, aids and equipment, changes to the home and car, cleaners, gardeners and other everyday tasks we take for granted.”
While lowering the Discount Rate the government is due to launch a consultation to consider whether there is a better framework for claimants and defendants. Chancellor of the Exchequer, Philip Hammond, has committed to meeting the insurance industry to assess the impact of the rate adjustment.
The consultation will launch before Easter 2017 and review options for reform. They will include whether the rate should be set by an independent body; whether more frequent reviews would improve predictability and certainty; and whether the methodology is appropriate for the future.