An expert panel advising the government in Guernsey on its personal injury discount rate (PIDR) has acknowledged that a rate which requires injured people to take investment risks goes against the principle of appropriate and full compensation.

The panel’s report has been published, and makes for some interesting reading.

While it recommends a system of multiple discount rates for Guernsey, what really stands out is that investment portfolios of Index-linked Gilts (ILGs) were used to determine the recommended rates.

The panel concluded that using ILGs for the calculations is needed to achieve 100 per cent compensation. Any movement away from using ILGs to determine the rate ‘would have the effect of adding unnecessary risk, which would be inconsistent with the principle of appropriate and full compensation’, according to the panel. In contrast, the use of other more risky asset classes, such as equities, produces a risk of both under and over-compensation, and means there is a risk ‘that a claimant will have inadequate future payments from such assets’. These very assets are used to help determine the rate in England and Wales, Scotland and Northern Ireland.

The Guernsey panel does not appear to touch on this directly, but the logic of its conclusion is that the rate-setting processes throughout the UK are not consistent with the full compensation principle. This reflects APIL’s own analysis.

A system which assumes claimants take some degree of risk, as is the case throughout the UK, inevitably creates a situation where for some, the risk may pay off, but for others it will not. This means that more people are both over-compensated and, critically, more are under-compensated, while fewer receive the correct amount of compensation. Those seriously injured people who are less successful when taking investment risks and are undercompensated, plainly do not have enough compensation to meet their needs for life. They have failed to make the money stretch.

This range of ‘successful’ and ‘unsuccessful’ investors does not happen if compensation is set with reference to ILGs, as is suggested by the expert panel for Guernsey. As a result, setting the rate with reference to ILGs is better at ensuring a secure outcome for all.

Following publication of the expert panel report, the Guernsey government is now conducting a short consultation on whether to adopt two or three rates (Guernsey already has two separate rates). Further background about the process in Guernsey can be found here.

-ends-