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'Crazy' injury payouts bill hits NHS

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A “reckless” government-ordered change to the way personal injury awards are calculated will add as much as £75 to already fast-rising average car insurance premiums, and land the NHS with an annual £1bn bill, the insurance industry has warned.


The lord chancellor, Liz Truss, has announced a change to the Ogden discount rate, which is used to calculate compensation awards for serious personal injuries, to ensure inflation does not erode the future value of a payout.


Sarah Stanton, a partner at law firm Moore Blatch, said the change would make an “enormous difference to claimants with life-changing injuries, particularly given that interest rates have been low for several years”.




Insurers have condemned a "crazy" reform increasing payouts for personal injury victims that they say will lead to steeply higher premiums for motorists as well as landing the NHS with a £1bn bill.






The Association of British Insurers (ABI) said the change announced by the Ministry of Justice was "reckless in the extreme" and affect 36 million motor insurance policies.


Between £50 and £75 will be added to the average car insurance policy, according to accountants PwC, with hikes of up to £1,000 for younger drivers aged 18 to 22 and £300 for motorists aged over 65.


The change, announced by Justice Secretary Liz Truss and welcomed by personal injury lawyers, centres on the way courts award lump sum payments to people suffering personal injuries.


Until now it had been assumed that those receiving the award would be able to invest the money and earn a rate of return, so a portion could be deducted from the total.



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If you work for the insurers, it is "crazy change will increase insurance bills"


If you are a Personal Injury lawyer, it is "change to reflect current low interest rates will protect claimants requiring payments over many years from loosing out, with this being a long-needed change". Naturally, this is their only interest in the matter, not the fact that those on "no win, no fee" Damages Based Agreements could see their fee income increase as a result ........


So, the truth is likely somewhere inbetween, and (like the Ogden tables themselves), an independent actuarial approach should mean fairness for all, with both predicted interest rates, predicted inflation and predicted life expectancy factored in.


One of the problems they face is that no one will know how interest rates and inflation will differ ; if they kept pace with each other it wouldn't be an issue. Small changes between them won't make much difference over a year or so, but over many years what starts as a small difference can become significant.


One solution to this is for the court to order "periodic payments", rather than one lump sum : these are able to be adjusted by the RPI*.

The payment can also be adjusted by the court (up if the claimant's needs / condition deteriorates, down if the claimant's condition improves).


This can assure that the claimant isn't under or over-compensated.

The limitation to this?. The court has to be sure the defendant will have funds available in years to come : such an order can only be made if "continuity of payment is reasonably secure"


* (or the more appropriate ASHE 6115 index, for care costs); for the pedants!.

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If you read the details then it makes sense to me really.


Payouts aren't actually being increased, it's just that previously any payout awarded was discounted by 2.5% as there was an expectation that the money could be easily invested/put into savings to make back that amount, and so to not discount the payment would result in the recipient profiting rather than simply recovering their losses. These rules were originally set before the financial crisis though I believe. So the rules have been updated now to better reflect the current financial climate.


Payouts are not being adjusted, only the level that they are discounted by. The insurance companies seem to be trying to spin it as if the actual payout levels are being increased though.

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Payouts are not being adjusted, only the level that they are discounted by. The insurance companies seem to be trying to spin it as if the actual payout levels are being increased though.


"Payouts are not being adjusted" : true, if you look at what the claimant receives over time, BUT


The insurance companies seem to be trying to spin it as if the actual payout levels are being increased though.


The insurance companies are correct to say that what a successful claim (with ongoing future costs) costs them today will increase. So in that respect ("what they have to pay, today, to maintain the future payment level for the claimant") is increasing, today.

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problem for insurers is that a negative interest rate has been set so they have to set aside more money that they cannot earn by investing themselves.

Blame the govt, not for this decision but for quantitative easing and the fiddling of inflation in the first place just to make their debt worthless.

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