horwich farrelly

Insurance market in Northern Ireland at risk under proposed discount rate changes

April, 1, 2020

Earlier this month Northern Ireland’s Justice Minister announced that she had asked officials to undertake a statutory consultation to consider the discount rate in Northern Ireland.  Matthew Fitzpatrick, Partner & Head of Northern Ireland, believes any potential change to the Discount Rate in Northern Ireland could put the sector at risk.

“The consultation of the discount rate in Northern Ireland requested by the Justice Minister is required under the Damages Act 1996. It will be conducted with the Government Actuary’s Department and the Department of Finance and will consider a proposed change from 2.5% to minus 1.75%.

“The Discount rate in NI has not been changed since 2001.  Unlike in England & Wales and Scotland, where the methodology for revision of the rate has changed to take into consideration a more realistic approach, the 1996 Act provides for a considerably lower risk approach. However, with interest rate cuts , the prospect of a global recession and a myriad of other Covid – 19 issues a negative discount rate may well be viewed as a certainty by many.

“In her letter, the Minister has left the door open to the possibility of changing the approach for this review and has confirmed that she will comment in due course.  With the backlog in Legislation in Stormont, there is likely to be sufficient time for a change in Legislation if the industry can influence a change in approach to reflect the changes already made in the rest of the UK.

“As the discount rate employed will be that at the date of trial, rather than date of accident, the impact of such a change will require substantial reserve re-calculations. The potential increase in the cost of claims may put off insurers writing policies in Northern Ireland which, in turn, could have the unintended consequence of increased premiums for all motorists.

“Whilst we all want to ensure that those injured are fairly and appropriately compensated, we fear that the proposed rate may ultimately lead to pricing some consumers out of purchasing motor insurance, shifting the burden to those who have paid their premium.

“Together with Malcolm Henké, Head of Horwich Farrelly’s Large and Catastrophic Injury Group, I am consulting with our clients, and we are committed to ensuring that the industry viewpoint on the impact of the proposed rate change is heard. We will be working closely with the Association of British Insurers, which is providing guidance to the Northern Ireland Justice Minister on the practical implications for not just high value personal injury claims but also for insurers who are writing policies in Northern Ireland.

“As such, we are calling for feedback from across the industry. It is imperative that as many views as possible are heard and presented to the Minister at this time, and we ask that anyone wishing to contribute gets in touch with us as soon as possible. We are particularly keen to hear feedback on what we believe will be the key points of impact: significant increases in reserves; increased insurance premiums; increased reinsurance costs; reduction in availability of motor / liability insurance and increase in uninsured accidents.”

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