UK & Europe
Decisions relating to the country’s discount rate could work to the detriment of policyholders.
2019’s decision by the Scottish Government Actuary to leave the Scottish discount rate unchanged at -0.75% after the rate in England and Wales rose to -0.25% will have significant implications for both claimants and policyholders in 2020.
The first issue is the increased potential for forum shopping. Prior to the rate changes, the insurance industry had been at risk of claimants looking to establish jurisdiction for claims in Scotland as a consequence of the country’s more favourable ‘claims playing-field’. Examples of this include the extreme disparity between awards in fatal claims – where, for example, the award for bereavement to a single family member in Scotland is likely to exceed the entire bereavement award for the family in England and Wales; the lack of any equivalent to the recent whiplash reforms in England and Wales; the availability of jury trials in Scotland for the determination of personal injury claims and the curious fact that a claimant exposed to asbestos in Scotland and diagnosed with pleural plaques can secure an award of approaching £10k if the exposure occurred in Scotland whereas they get absolutely nothing if there was similar exposure and diagnosis in England and Wales.
Now, the marked difference between the discount rates will only increase the likelihood of forum shopping. While the Scottish government has made a virtue of encouraging the resolution of compensation claims to the benefit of the claimant in Scotland, the corresponding increased cost to the premium payer seems to be carefully ignored.
This leads to the second issue: the increased cost to the premium payer in Scotland. Scotland’s less favourable discount rate inevitably means that damages in any claims which involve future losses will be higher in Scotland than in England and Wales. The insurance industry operates on the basis that it looks to offset claims spend by, inter alia, charging premium for cover, so the higher the outlay, the higher the premium.
The Scottish Government has repeatedly been warned by the insurance industry, and those who serve it, that the ever-increasing desire to differentiate Scotland from the rest of the UK in terms of the generosity of its compensation system would result in higher levels of premium being paid by its citizens. The recent news about the difference in the discount rates applicable north and south of the border seems to make that outcome inevitable.
Read the rest of our insurance predictions here.