Amanda Wylie

The Department of Justice recently launched a consultation on how the discount rate or “real rate of return”, used by the courts to determine the size of personal injury awards, should be set.

In its response, Kennedys said a failure to act could lead to higher insurance premiums and even more financial pressure on the health service, as well as a restriction of the insurance marketplace with less choice for consumers.

In most cases where damages are awarded in a successful personal injury compensation claim, the money is typically paid by way of a single lump sum in order to support the injured person over a period time.

The payment may come from the government in cases of medical negligence or insurance companies for other types of accident and the money is then invested.

The discount rate, currently set at 2.5 per cent in Northern Ireland, is a mechanism that adjusts the lump sum to factor in the income such investments are likely to generate and so avoid over-compensation.

According to Kennedys, the current assumption that claimants invest in very low-risk government bonds does not reflect reality. The firm favours the approach recently adopted in England and Wales of determining the rate by reference to expected rates of return on a low-risk diversified portfolio of investments.

The firm warns that continuing to use the current approach will have several negative consequences, including higher insurance premiums for consumers and commercial businesses in Northern Ireland compared with the rest of the UK and the Republic of Ireland.

It has called on the Department of Justice to set up an independent expert panel to advise on the appropriate rate every five years, and Kennedys has encouraged the justice minister to consider the approach taken in England and Wales.

Amanda Wylie, managing partner of Kennedys Belfast LLP, said: “The overriding principle is that injured people should receive 100% of the compensation they are awarded – no more and no less.

“We in Northern Ireland can benefit from the lessons learned from the experience of England and Wales to create a fair and balanced outcome given that the compensation system is funded largely by taxpayers and consumers, and their interests must be part of the equation.”