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A leading UK personal injury law firm has hit out at comments by the UK insurance industry trade association after recent personal injury reforms announced by the government, would increase compensation payments.

Manchester based no win no fee solicitors, Freeclaim Solicitors, criticised comments made by Huw Evans, director general of the Association of British Insurers’ (ABI) after he called the recent decision by the Ministry of Justice (MOJ) to lower the personal injury discount rate as “crazy.”

Quentin Underhill, Head of Legal at Freeclaim Solicitors, said Mr Evans had failed to “recognise the decision was made for people whose lives will never be the same again.”

“The personal injury discount rate has remained untouched since 2001, despite falling interest rates and investment returns, particularly since 2008. We are in an environment of low returns and personal injury compensation awards should reflect this.

“Victims left with serious injuries after road traffic accidents and other serious life changing accidents, should now have a fair calculation so their compensation should look after them adequately as they get older.

“Compensation claims are not purely about giving someone a sum of money to compensate them for their injuries; it goes much further than that. Compensation is also calculated to fund the much needed support, treatment and rehabilitation someone needs to live as independently as possible following a serious injury and make the best possible recovery. This support in many cases is life long, and does not end just because the claim has concluded.

“To suggest that the reduction in the discount rate, to care adequately for seriously injured victims of road traffic accidents is ‘crazy’ because the insurers will be forced to increase premiums for motorists, does the insurance industry no favours at all. Especially in view of recent announcements concerning increased profits.”

The announcement by the Ministry of Justice that the rate used to calculate lump sum compensation payments for serious injuries will be reduced from 2.5 percent to -0.75 percent has been met with hostility by the ABI.

Mr Evans called the move a “crazy decision” as it would result in an “inevitable increase in motor and liability premiums for millions of UK drivers and businesses.”

According to the ABI, the decision could affect up to 36 million individual and business motor insurance policies while claimants will be over-compensated.

“We have repeatedly warned the Government this could lead to very significant price rises, with younger drivers, in particular, likely to find it much harder to get affordable insurance.”

From March 20, the reduction in the rate will mean that on a typical lump sum compensation payment of £1,000 ($1,245), an insurance company will now pay an additional 7.5 percent, making the new compensation payment £1,007.50 ($1,254.39) compared to £975 ($1,213) under the old rate.

The rate, known as the Ogden rate, is used to determine the amount of the compensation a court should award based on an expected rate of the return when that money is invested. When a person has suffered serious or life-changing injuries the compensation will provide the necessary financial security to pay for care costs and loss of earnings.

According to the MoJ, -0.75 percent is the “only legally acceptable rate” they can set. The reduction in the rate reflects the fall in index-linked gilt yields, which are used to determine serious injury compensation payments.

The MoJ say the law makes it clear that personal injury claimants must be treated as ‘risk averse investors’ to reflect the fact that because of their injuries they are financially dependent on the compensation they are awarded, often for long periods or the duration of their life.

According to Mr Underhill, individuals unfortunate to suffer serious and life-changing injuries will now receive a lump sum compensation payment based on a much fairer rate than previously.

“Serious injury victims are financially dependent on their compensation award for either long periods or the duration of their lives, the payment should, therefore, be sufficient to put the claimant in the same financial position had they not been injured,” he added.