New Northern Ireland Executive could intervene on insurance premiums, says expert

UK justice minister Liz Truss announced this week that the rate, which is designed to account for the investment return an individual would receive over their lifetime if they invested a lump sum compensation payment in the lowest risk investment, would fall from 2.5% to minus 0.75% from 20 March. However, the discount rate in Northern Ireland is set by the devolved Department of Justice (DOJ).

Litigation expert David Kirkpatrick of Pinsent Masons, the law firm behind Out-Law.com, said that it was difficult to predict whether the Northern Ireland Executive would intervene on the discount rate, given the recent political upheaval in the country. However, he pointed out that premiums were already higher in Northern Ireland than elsewhere in the UK.

"A recent AA report on the cost of insurance across the UK identified Northern Ireland as the region with the highest premiums," he said.

"There can be little doubt that insurers faced with larger compensation awards will have to pass on some of the costs to consumers. The political uncertainty around any restoration of a Northern Ireland Executive makes it difficult to predict what will actually happen, but one thing is clear: a local justice minister has the power to depart from the direction of travel set by the Westminster government, and reduce the potential for even higher premiums. The real question is, would they use it?" he said.

The Northern Ireland Assembly was dissolved at the end of January, prompted by the decision of deputy first minister Martin McGuinness of Sinn Fein to resign in protest over the rival DUP's handling of a renewable energy scheme. The power-sharing agreement between the two parties, drawn up as part of the Good Friday Agreement, collapsed when Sinn Fein did not nominate a replacement within the statutory seven day period.

Elections to the Northern Ireland Assembly took place last Thursday. Once the election is over, the two leading parties will have three weeks in which to form a new partnership government.

The UK discount rate has not been changed since 2001. Since then, the return on index-linked gilts, which are seen as the lowest risk form of investment, has dramatically fallen. The 1996 Damages Act requires that those receiving lump sum compensation awards are treated as risk-averse investors, reflecting the fact that they will be financially dependent on the lump sum for perhaps the remainder of their life.

The UK government intends to publish a consultation before Easter on whether there is a "better or fairer" alternative to the current rules, and has committed to bringing forward any necessary legislation as quickly as possible. It will also put extra protections in place for GPs and the NHS, and is consulting with the insurance industry on the issues that they will face as a result of the likely increase to compensation payments.