Guernsey: Consultation on proposed discount rate and related matters

Guernsey’s Policy and Resources Committee has released a consultation on the personal injury discount rate and related matters.

The Damages (Assumed Rate of Return and Related Matters) (Enabling Provisions) (Guernsey and Alderney) Law, 2020 ("the Damages Law") was registered before the Royal Court in 2021 and is shortly to be commenced by Ordinance. The policy letter introducing the Damages Law provides a mandate for the enactment of secondary legislation to set the discount rate, and for consultation to consider the introduction of a system to recover healthcare costs and potentially to limit damages awards.

Discount rate

In relation to the discount rate the policy letter states that the Committee should set the rate by regulations, and which rate would be consulted upon prior to being set.

The consultation notes the discount rate is a “contentious issue” which could have a significant impact in the Bailiwick “if the rate creates too great a risk for insurers.” By introducing a statutory discount rate “it is hoped that some of this risk will be mitigated”.

At present, the Bailiwick has no statutory discount rate and no legislative framework supporting the use of Periodic Payment Orders. In Guernsey and Alderney, the Royal Court used to follow the UK discount rate. However, in Simon v Helmot the Privy Council departed from the UK rate (which was then 2%) and determined that at that time the applicable Guernsey discount rates were negative. The Simon v Helmot judgment and the consequential uncertainty around the applicable discount rate is understood to have increased the cost of insurance in the Bailiwick, as it has increased the underwriting risk for insurers of such risks.

In order to provide certainty, the Damages Law has been introduced which permits a statutory discount rate to be set by regulations of the Policy & Resources Committee, subject to review over time.

Proposed rate

Consideration has been given to the current discount rate in the UK (-0.25%) and Jersey (0.5%/1.8%) as well as the need to strike a balance between the interests of potential claimants and the premium paying public and the need to avoid an insurance crisis.

The Committee notes that the Jersey rates anticipate a less conservative investment strategy than the UK discount rate, and that the Jersey rates were set after a review of the discount rate by the States of Jersey’s Senior Economist and Director of Treasury Operations and Investments.

The Committee appreciates “the rationale of Jersey’s rates and the benefits to insurers and insured persons in insurers being able to price across both markets” and thus proposes initially to adopt by regulation the rates set by Jersey and seeks comments on this proposal.

Periodic Payment Orders

The court will be able to order Periodic Payment Orders (PPOs) by virtue of section 2 of the Damages Law. Pursuant to section 2(7) rules of Court may be made requiring the court to take specified matters into account when making PPOs.

The Committee states it is widely considered that PPOs are underused, and to ensure that they are used more often rules of Court could “create a presumption that damages for will be awarded via PPO if a secure PPO is available.” The main issues on which responses are sought are:

• how to determine whether PPOs are secure
• whether PPOs should be voluntary or awarded more routinely under a rebuttable presumption that they provide the best method of compensation
• whether PPOs should only be awarded for certain heads of loss, and
• how awards via PPOs should be indexed.

Recovering healthcare costs and benefits

In the UK, the Compensation Recovery Unit (CRU) recovers healthcare costs arising from personal injury accidents. Section 3 of the Damages Law permits the introduction of a similar scheme by Ordinance of the States. However, before a similar scheme can be introduced the Committee would have to submit a policy letter for States’ consideration. The Committee therefore wishes to gather feedback as part of the consultation prior to deciding whether to recommend the introduction of such a scheme.

Limiting awards of damages for personal injury

The consultation also considers whether restrictions should be placed on the amount recoverable as damages from a personal injury claim to ensure that “personal injury insurance will remain both available and affordable”. The Committee seeks responses on whether damages awards should be capped and whether there should be limits or caps on future care, gratuitous care, loss of earnings and general damages.

The consultation which can be found here ends on 17 May 2022 and responses to the above issues are required by then.