The Bill includes a late amendment by the Scottish Government to increase the standard adjustment for investment charges and taxation from 0.5% to 0.75%. Based on the initial calculation of the rate under the model proposed in this Bill this would lead to an adjusted forecast of -0.25% rather than the 0% previously predicted.
The ABI have said: "Insurers remain committed to paying 100% compensation to all personal injury claimants, and we support reform of the Discount Rate that delivers a fair outcome for claimants, motorists and taxpayers. However, this Bill will mean higher pay-outs for compensators such as the NHS and insurers. It puts Scotland out of kilter with England and Wales, and could mean higher insurance costs for many Scottish motorists as a result.”
MSPs had raised concerns about the risk of over-compensation and unintended consequences affecting public bodies and the insurance industry. Responding for the Scottish Government the Minister for Community Safety, Ash Denham MSP, said the rate adjustment followed advice from the Government Actuary’s Department and would be reviewed as part of the legislative framework.
What Now?
There will be a reconsideration stage for four weeks and the Act will then proceed for Royal Assent and could be on the statute book by May. There will then be a commencement order followed by a 90 day period while the Government Actuary’s Department will finalise the Discount Rate for Scotland. It is anticipated that these steps will take some months and it may be autumn before the process delivers a new Scottish Discount Rate.
How it compares to England & Wales?
The Lord Chancellor this week commenced the first review of the discount rate under the new methodology introduced by Part 2 of the Civil Liability Act 2018 in England and Wales. The Lord Chancellor now has 140 days to conduct the review, meaning determination about the rate will be made on or before 5 August 2019. The government said last year that this might turn out to be in the 0 to 1% range in England and Wales with a likely rate on current evidence at 0.5%, midway within that range.
It seems the Scottish Discount Rate will be decided some months after the determination in England and Wales. The Scottish rate is likely to be significantly lower with a rate of -0.25% expected in Scotland and 0.5% in England and Wales.
The implications of this on over-compensation, jurisdictional forum shopping and the level of insurance premiums in Scotland remain to be seen.
Andrew Lothian, DWF's Head of General Insurance Scotland commented: "It is obviously a matter of concern to have such a wide difference in projected discount rates between the two jurisdictions. The risk of unintended consequences is obvious. Unfortunately the Scottish Government has not properly calculated the likely effect of their approach, which will hit the NHS, taxpayers and insurance policyholders in their pockets. The Minister has said that the standard adjustments will be kept under review and it is important insurers and all others affected participate in that process."
Contact
For further information please contact Andrew Lothian, Head of General Insurance (Scotland) on 0131 474 2305.
