Payouts for car crash victims could fall by MILLIONS of pounds from 2025 – and here’s why

Car crash victims could receive millions of pounds of their compensation payouts from 2025 following changes to the government.

Compensation for life-altering injuries is calculated using a figure called the personal injury discount rate or Ogden rate.

The government has announced that this rate will increase from -0.25 percent to 0.5 percent from January 11, 2025.

The Ogden rate is used by courts to decide how much personal injury claimants should be paid as a lump sum by insurers in England and Wales.

If the Ogden rate falls, payout amounts rise, and vice versa, so insurers quickly find themselves with much lower bills for compensation claims.

For claimants, the changes could save millions of pounds on their compensation bills.

For example, under the current Ogden rate, a young person who is disabled and needs lifelong care after a serious car accident would need £200,000 a year for 60 years, taking into account the loss of income.

At the current Ogden rate, this person would receive a lump sum of £12.9 million, according to the Association of Personal Injury Lawyers.

But when the rate changes to 0.5 percent, this payout drops by £2.58 million to £10.37 million.

The way lump sum compensation works is that the recipient is expected to invest the money and use that return to fund their care.

The Ogden rate is changed every five years to account for expected returns on investments over time.

The idea is to ensure that as many accident victims as possible receive just the right level of compensation, with as few people as possible being underpaid or overpaid.

However, using one rate for every claimant is risky because it means some get less or more money than they need, especially when taking into account uncertain investment returns and inflation.

Lord Chancellor Shabana Mahmood, who sets the Ogden rate, said: ‘It is very important to recognize that the personal injury discount rate will always be a relatively blunt instrument, as no rate choice can ever guarantee that all claimants receive exactly their full benefit received. compensation.

‘In determining this rate, it is inevitable that there will be some degree of over- or under-compensation of claimants in individual cases.’

The chance of full compensation, or more, will be 55 percent from January 11, 2025, Mahmood said. The chance of serious undercompensation was 25 percent, as shown by the three sample claimants used in the calculations.

This increased possibility of overcompensation could put upward pressure on car insurance premiums, according to the Association of British Insurers (ABI).

An ABI spokesperson said: ‘We and our members firmly believe in full and fair compensation for claimants.

‘However, the Lord Chancellor’s approach introduces significant caution into the calculation, which could lead to overcompensation. This could have a negative impact on all premium-paying customers, especially young drivers for whom costs tend to be higher, and on taxpayers.”

Car insurance premiums are slowly falling, but the average driver still pays £622 a year for cover.

Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, said: ‘The Lord Chancellor has sensibly erred on the side of caution and is therefore making it less likely that the 100 per cent compensation principle will be breached.

“By opposing siren calls asking for a much higher rate, she has done the right thing by seriously injured people while ensuring compensation costs are kept in check.”

Pedestrians and road users are most affected by the changes in Ogden, as most personal injury claims involve a vehicle.

Road traffic accidents make up around half of all personal injury claims, with public accidents making up 21 percent of claims and workplace accidents around 16 percent.