The Hong Kong Court of First Instance has issued a ruling on cases involving the discount rate used for injury claim settlements, depending on the term of the benefit payment. The rate has been revised down from 4.5% to between –0.5% to 2.5%. Three different discount rates have been adopted for plaintiffs with different future needs.
- For plaintiffs with future needs not exceeding five years, the rate was set at -0.5%
- For plaintiffs with future needs between five and 10 years, the rate was set at 1.0%
- For plaintiffs with future needs exceeding 10 years, the rate was set at 2.5%
These downside adjustments for future losses are likely to have a severe effect on future losses, and there are some problems that may be associated with increasing discount rates associated with increasing terms of future need. There may be additional practical issues that arise from such a large-scale change.
This article discusses the rules to guide discount rates for settlement terms and what insurers should begin do now for outstanding claims.