Minister McEntee publishes reports on index and discount rates for payments to catastrophically injured people

Minister for Justice Helen McEntee TD has today published two important reports relating to compensation payments in personal injuries cases:

1) the Report of the Interdepartmental Group on the Indexation Rate for Periodic Payment Orders – Periodic Payment Orders Indexation Rate - Report of the Inter Departmental Working Group

2) the Report of the Independent Expert Working Group set up to advise on an appropriate Discount Rate for use in catastrophic injury cases – Setting the Discount Rate - Report of the Expert Working Group

Periodic Payment Orders (PPOs) are an alternative to lump sum payments to catastrophically injured people, providing for an ongoing annual payment over the lifetime of a claimant rather than a single lump-sum compensation payment.

While PPOs are considered to be the most appropriate form of compensation, claimants in catastrophic injury cases have been pursuing lump sum payments instead following a ruling by the High Court in 2019 that the indexation rate set out in legislation would result in under compensation for claimants as it did not take account of wage inflation.

The Indexation Rate Interdepartmental Group has recommended that:

• The PPO indexation rate should be based on a combination of the Harmonised Index of Consumer Prices (HICP) and Annual Rate of Change (ARC) in nominal hourly health earnings;

• The amount of a yearly periodic payment payable should be based on a PPO indexation rate comprising 80% of average Annual Rate of Change in nominal hourly health earnings added to 20% of the HICP.

Where a Court makes a lump sum award in a personal injury case, it uses the Discount Rate to determine the size of the award necessary to compensate a person for future losses. The Rate reflects what an award recipient would likely receive in return if the award amount were invested. The Rate currently stands at 1% for future care costs and 1.5% for other financial losses.

The Discount Rate Independent Working Group has recommended that:

• the discount rate should remain unchanged from the rate set by the High Court in 2014 and subsequently confirmed by the Court of Appeal;

• plaintiffs in catastrophic injury case should continue to be considered as having a risk averse profile;

• an expert group should meet at a maximum of every three years to reassess the discount rate and;

• a “trigger” mechanism should be introduced to enable a review of the discount rate if there is a marked change in economic circumstances or if the rate is successfully challenged in court.

Speaking on the publication of the reports, Minister McEntee said:

“I would like to thank both Groups for their work on what is a life-changing issue for people who suffer catastrophic injuries, as well as an important element of the Government’s work on insurance reform.

“Survivors of catastrophic injuries deserve compensation that is both fair and adequate to meet their treatment needs.

“Periodic payment orders are the most suitable option to achieve this balance, as payments are more closely tied to actual costs of care and treatment over a lifetime, rather than estimated costs and life expectancy.

“Payments on an annual basis, linked to an appropriate index rate, ensure recipients will always have adequate financial provision for their care, regardless of changing economic circumstances. This provides certainty for the recipient, their loved ones and for the State too.

“The proposals of the Indexation Group will ensure that periodic payments keep pace with future inflation and changes in healthcare costs. I have approved the recommendations of the Group and work is underway on preparing the necessary regulations, which once signed, will facilitate the practice of settling catastrophic injury cases by way of Periodic Payment Orders.

“I have also accepted the recommendation of the Discount Rate Review Group that there is no material evidence to justify a change in the current discount rates set by the High Court in 2014. Work has also commenced on prepared the necessary regulations to set the discount rates for future financial loss and future cost of care.

“These rates will be subject to periodic reviews and I am also considering the most appropriate way in which the ’trigger’ mechanism recommended by the Group can be brought into operation.”

ENDS../

Notes for Editors

Terms of Reference and Membership of the Interdepartmental Group on the Indexation Rate for Periodic Payment Orders

1. Consider an index or indices to be applied to annual adjustments of periodic payment orders (PPOs), taking account of High Court rulings on the relevance of the Harmonised Index of Consumer Prices (HICP) to PPOs.

2. Submit a recommended position in relation to the indexation rate to be used in annual adjustments of periodic payment orders to the Minister for Justice.

Membership of the Group comprised representatives from the Departments of Justice, Finance, Health, Enterprise, Trade and Employment, and Public Expenditure, NDP Delivery and Reform. In addition, the State Claims Agency and the Office of the Attorney General were members of the Group.

The Central Statistics Office provided technical advice to the Group. The IGEES service in the Department of Justice Research and Data Analytics Unit also played an important role in developing analysis for the Group.

The report recommends a hybrid approach to indexation which takes account of the need to address healthcare wage inflation (as noted by the High Court).

The recommendation is informed by evidence regarding the balance of labour and non-labour costs from the State Claims Agency, by expertise from the CSO and analysis from the IGEES service in the Department of Justice.

The recommendations of the Expert Working Group on Setting the Discount rate are as follows:

1. In line with the principles set out in Russell v HSE, the Group believes that there is no material evidence to change either of the discount rates given the justification laid out in the judgments of the High Court and the Court of Appeal. This view is informed by where inflation-linked bond yields currently stand. The Group, therefore, recommends no change in the discount rate.

2. Regarding the wage inflation discount rate, the Group notes that the 0.5% differential determined by the Courts does not appear to have a strong evidential source, but this differential appears reasonable both in the context of 2014 and in present conditions. Accordingly, the Group recommends no change in this area.

3. The Group recommends that the discount rate should be kept under review. The Group recommends that an expert group should meet at a maximum of every three years to reassess the discount rate.

4. The Group recommends that a “trigger” mechanism be introduced to commence any review of the discount rate. For example, a set of index-linked Government bonds could be monitored and if a majority of those bonds move outside of a pre-determined range for two quarters in a row, then a review of the discount rate would be triggered. The Group considers that the introduction of such a trigger mechanism would most likely result in more frequent reviews and would ensure that the discount rates set remain fit for purpose having regard to the objectives set.

5. As the Group’s recommendations are based on the applicability of the referenced Court judgments, the Group recommends that any new judgment which may supersede the Russell judgments should also trigger a review of the discount rate set.

6. The Group recommends that plaintiffs in catastrophic injury cases should continue to be treated as risk averse in relation to their investment profiles.

Publication of the Report of the Independent Expert Working Group set up to advise on an appropriate Discount Rate for use in catastrophic injury cases fulfils an important commitment by the Department under the Action Plan for Insurance Reform.