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Research

Towards Fairer Compensation

Research undertaken by City, University London academics has helped UK courts better assess the loss of earnings suffered by people who have had accidents.

Each year thousands of people make claims in the civil or criminal courts for compensation following accidents or negligence which has damaged their ability to work.

Compensation is often a lump sum payment based on the loss of future earnings as a result of injury. The level of this compensation is calculated using actuarial data known as the Ogden Tables, from which UK courts can compute loss of future earnings through personal injury or fatality.

These tables have, however, been proven rigid in their methodology and omit several key factors that influence the fairness and amount of payments. As a result, the calculation of injury compensation is often inaccurate – failing to take into account diminished the working prospects of impaired claimants – and therefore unfairly low.

Dr Zoltan Butt, Professor Steven Haberman and Professor Richard Verrall from The Business School (formerly Cass) devised an improved model for calculating compensation which has resulted in fairer - and often higher – payments.

What did we explore and how?

Dr Butt, Professor Haberman and Professor Verrall used dynamic multi-state modelling to include factors that had not previously entered the calculations, such as employment status, any previous disabilities and educational attainment.

This is a new and structured approach which is based on recently available data from the UK Labour Force Survey. It uses information about current age and economic state to better predict the chances of being out of work in the future.

Benefits and influence of the research

The factors identified by the researchers were found to have had significant impact on future working patterns.

When they are included in calculations, the model produces greater accuracy for calculating future loss of earnings due to injury, and therefore a fairer level of compensation.

The research has vastly improved the way that compensation claims are assessed, allowing UK courts to account for additional mitigating circumstances to affect the length of a claimant's future working life. Those with a disability – particularly one as a result of an accident rather than existing from birth – and people with lower educational attainment now receive higher and fairer compensation than they did previously.

The methodological framework developed by Cass academics provides a simple and robust way to estimate the likely length of remaining working lifetime – or ‘worklife expectancy’ – which is directly applicable to the assessment of damages in courts.

The research feeds directly into the 6th, 7th and the recently published 8th Editions of the Ogden Tables. It has also greatly affected the UK insurance industry, through its impact on insurance premium levels and capital reserves, in motor and health insurance.

The researchers

Dr Zoltan Butt

Professor Steve Haberman

Professor Richard Verrall

More about this research

  • Cass Business School
  • Status: Completed
  • Topics: Business and management
  • Industry/sector: Law, justice and crime
  • Publication link: External link