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Scotland Discount Rate stays at -0.75%

The Government Actuary has this morning published his report recommending that the Scottish Discount rate remain at  -0.75%.  The report along with his recommendations was sent to Scottish Ministers on Friday last week.

The report is to be laid before Parliament the day after Scottish Ministers take receipt, and so it is likely that will happen later today or tomorrow. 

Our initial view

This is not good news for insurers, and while not a complete surprise in terms of recent developments it is a lower rate than many had anticipated. The new rate leaves us with a significant differential of 0.5% between Scotland and England and Wales, and a dual system where the cost of claims will be significantly higher for the NHS and taxpayers in Scotland.  The reality is that this rate will likely result in overcompensation to claimants above and beyond the current situation south of the border.   

Why is there a different rate in Scotland?

The Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 is the legislation that determines the methodology for setting the rate in Scotland.  The Act allows for a statutory "further margin" of -0.5% without which would have seen the rate at -0.25%.  This is a pure policy decision by the Scottish Government in response to arguments presented by the claimant lobby.  We have argued that there is no logical basis for this given that the risks are already factored into the investment portfolio.

The practical effect

Worked examples below showing effects of differential rates for Scotland and England and Wales at -0.75% & -0.25%

 

Andrew Lothian, DWF's Head of General Insurance Scotland and current Scottish Regional Representative of FOIL commented:

"It is disappointing that the statutory "further margin" imposed by the Scottish Government will have the effect of driving up the cost of claims in Scotland when compared with the rest of the UK. Those costs fall on Scottish taxpayers and policyholders. Insurers will now have to run separate systems for Scottish claims which will add further costs to the claims process. We will continue to argue for a fair system of compensation that reflects how claimants actually invest their damages awards and avoids over-compensation." 

Contact

For more information please contact Andrew Lothian, Partner, T+44 131 474 2305, Andrew.Lothian@dwf.law.

 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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