The latest revision to the Ogden tables could result in a 50% increase in the cost of some personal injury claims, but insurers are not worried. Tom Flack explains
Lawyers have this week predicted that insurers could face massive increases in pay-outs in personal injury cases.
This follows changes to the way the courts assess awards for damages involving fatal injury and future loss of earnings.
The changes are the result of the publication this month of the sixth edition of the Ogden Tables, actuarial tables which are used to calculate claims pay-out multipliers and determine life expectancies.
But insurers are playing down the impact, claiming that the increases are in line with inflation and increasing life expectancy. They say the increases are actually less than they had previously feared following the release of a draft in December.
Mike Noonan, heads of strategic claims management at QBE Insurance, says: “Overall, the average increase in pay-outs will be less than 2%. There was some anxiety that we would be hit harder. These changes are in keeping with a broad and anticipated spectrum of increases in claims.”
This view is supported by government actuaries, who claim that the new tables should provide the most detailed advice yet.
The Government Actuary’s Department says: “The courts will be able to make more accurate assessments of possible mitigation of loss arising from residual earnings capacity after an accident. The overall package should be of benefit to insurers.”
Yet the latest edition, the first revision since 2004, is not without controversy. Devised by the government actuary’s department, they set out a new methodology for dealing with contingencies other than mortality, factoring in changes to both the actual and potential earning capacity of an injured party.
Adrian Southwood, a solicitor at Hugh James, says that the revised tables constitute a real threat to the insurance industry, and warns that future loss of earnings payments could “go through the roof”.
The revised table could see insurers pay out increased claims reaching into hundreds of millions, he says. In some cases, claims could increase by up to 50%.
He adds that in some cases claimants could end up earning more after their accident than before it. “There are questions of definition, for example what constitutes a disability. The tables do not treat losing one hand or both any differently.”
But some of these changes, insurers agree, are necessary. Life expectancy has increased by three years, from 83 to 87 among men and 87 to 90 among women. The multipliers have been raised accordingly.
Joe Monk, an actuary at Lane Clark & Peacock, says that even if the modifications were to result in vastly inflated pay-outs in some cases, the system could yield savings for insurers. This includes cases where there is no residual earning capacity on the part of the claimant.
“The explanatory notes have been significantly expanded and are more prescriptive. This makes the calculation of general damages more complicated, although this could potentially lead to savings for defendants,” Monk says. “But claimants will see this as a mixed bag.”
A spokesman for the ABI says that the revised tables constituted “a mix of good and bad”, adding that “what is clear is that uncertainty is always bad news for the insurance industry”.
Indeed, while the net effect of the tables might not spell huge hikes in claims costs, they do pose some serious legal questions. First is the issue of settling existing claims where the revised multipliers could have an effect.
Second is the possibility of mounting a legal challenge in an attempt to overturn the tables themselves. Furthermore, there is a fear that the tables are part of a gradual shifting of the burden of care from the state to the policyholder.
Southwood says: “Even if insurers can’t overturn it, there will be ensuing litigation – litigation where both sides could find themselves in a black hole.
“The burden of assessing claims is shifting from judges to actuaries. The claims issue must be tested in court, or premium payers will end up footing the bill.”
The publication of the revised Ogden tables coincides with the release of the Ministry of Justice’s proposals for reform of the law of damages, which also threatens insurers with the possibility of larger damages payments for care and dependency.
Noonan describes this as “an attempt to work within a range of expected outcomes, to tailor to fit the individual needs of the claimant.”
He adds: “These are increases insurers can live with.”