Car crash sufferer payouts may fall by MILLIONS of kilos from 2025 – here is why

Car crash victims could get millions of pounds knocked off their compensation payouts from 2025 after government changes.

Compensation for life-changing injuries is worked out with a figure called the personal injury discount rate, or Ogden rate.

The Government has announced this rate will rise from -0.25 per cent to 0.5 per cent from 11 January 2025.

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

If the Ogden rate falls, payout amounts rise, and vice versa, so insurers soon face far lower bills for compensation claims.

Driving force: Most people affected by the changes will have been injured in road accidents

For claimants, the changes can shave millions of pounds off their compensation bills.

For example, under the current Ogden rate a young person disabled and needing lifelong care after a serious car crash might require £200,000 a year for 60 years, taking into account their loss of earnings.

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

But when the rate changes to 0.5 per cent, this payout falls by £2.58million, to £10.37million.

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

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

The idea is to make sure as many accident victims get just the right level of compensation, with as few as possible either underpaid or overpaid.

However, having a single rate for every claimant is risky, as it does mean some get less or more money than they need, especially taking uncertain investment returns and inflation into account.

Lord chancellor Shabana Mahmood, who sets the Ogden rate, said: ‘It is very important to recognise that the personal injury discount rate will always be a relatively blunt instrument, since no one choice of rate can ever ensure that all claimants receive exactly their full compensation.

‘When setting this rate, it is inevitable that some degree of over or under-compensation of claimants will occur in individual cases.’

The chance of getting full compensation, or more, will be 55 per cent from 11 January 2025, Mahmood said. The chance of being very undercompensated was 25 per cent, according to the three example claimants used for the calculations.

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

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

‘However, the lord chancellor’s approach embeds significant caution into the calculation which could lead to over-compensation. This could have an adverse impact on all premium-paying customers, particularly young drivers for whom costs are typically higher, and the taxpayer.’

Car insurance premiums are slowly falling, but the average driver is still paying £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 in doing so makes it less likely that the 100 per cent compensation principle will be broken.

‘In resisting siren voices calling for a much higher rate, she has done the right thing by seriously injured people while also ensuring that costs to compensators are kept under control.’

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

Road traffic accidents make up about half of all personal injury claims, with accidents in public comprising 21 per cent of claims and workplace accidents around 16 per cent.