This is a growing collection of topics aimed at developing a broader understanding of personal injury claims to assist professionals in the medico-legal industry. While these are generally accepted principles, there may be differing opinions.

Loss of Earnings Claims

The goal of the calculation is to determine a lump sum that will compensate the claimants for their loss.

Loss of earnings is the total earnings the claimant would have earned had the accident not occurred (uninjured earnings), less the total earnings earned now that the accident has occurred (injured earnings). The actuary will calculate the lump sum uninjured and injured earnings as follows:

Step 1: The claimant’s gross income (before deductions) from date of the accident to the date of retirement is projected in the terms applicable to each month using published CPI data (e.g. income for June 2011 in June 2011 money terms, income for January 2013 in January 2013 money terms). We are provided with the salary at the date of the accident, an indication of how the salary would have increased (with inflation / straight line) and the intended retirement age.

The difference between straight line and earnings inflation increases has a significant impact on the claim value.

 
Step 2: Tax is deducted from income, as per tax rates applicable in each tax year.

If net earnings are provided instead of pre-tax gross earnings, additional tax may incorrectly be deducted.


Step 3: Income in each month is multiplied by the probability that the claimant / deceased would have lived to that age, based on life tables.

Step 4: This lump sum is split into past loss and future loss. “Past” refers to the period between the date of the accident and the date of calculation/settlement, and “future” refers to the period from the date of calculation/settlement onwards.

Industrial Psychologists often state “no past loss” when in fact this is only for the period directly after the accident until they returned to work.





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