Actuarial assessment of damages in personal injury litigation: How precise are we?

Abstract

In personal injury litigation, claimants may seek their compensation for future losses or expenses as a lump sum that is determined by the product of a multiplicand and a multiplier. The multiplicand represents the annual loss in earnings and other benefits, as assessed at the trial date, while the multiplier discounts future pecuniary values into a single present-day lump sum amount. At present, multipliers in the UK are calculated using actuarial methods and based on assumed mortality and interest rates. However, it is entirely possible that these assumptions are incorrect, and if they are, then all claimants who rely on the same set of actuarial multipliers will be affected. In this article, we investigate how the uncertainty surrounding mortality and interest rate assumptions affects the precision of actuarial multipliers. With the aid of stochastic models, we estimate the possible range of values that an actuarial multiplier can take. © The Author 2011. Published by Oxford University Press. All rights reserved.