Actuarial calculations

How to instruct your actuary and read your actuarial calculation - The most important consideration when instructing your actuary is not to simply forward the industrial psychologists report but to give due consideration to the past and future loss of income you want to claim for on behalf of your client.

The most important first step is getting the remuneration correct. A self employed individual would need to provide you with bank statements, tax returns and any info on additional part time income they might earn, last mentioned is very important as this is the first income that goes out the window when plaintiffs are injured. As per self employed individuals see my previous post for some advice in this regard

 

Make sure that you have a list of all benefits that a plaintiff receives from the company if this is not in his employment contract or reflected on his payslip, e.g. a paid lunch, transport or any daily cash allowance. Domestic workers and gardeners are a good example of this. Taxi drivers are a tricky one, make sure you contact the taxi association to determine the name and number of the owner of the taxi so as to enable you to confirm income and terms and conditions as taxi drivers actually pay the owner of the taxi and keep the rest for themselves, as such their income may fluctuate and not be in line with Patterson levels.

 

Make sure to inform the actuary if you want to use a different basis for calculation in terms of promotional prospects or future salary increases as per the industrial psychologists report. Even without an IP report you can adequately brief a actuary in an MVA matter but briefing an actuary in a medical negligence claim would require the quantification of all hospital and medical expenses and for that you will need to present the actuary with ALL your expert reports so as to allow him to do a schedule to the calculations.

 

Remember to tell your actuary which contingencies you would like him to apply and please consider these carefully and discuss them with your counsel as they can add or subtract to your calculation exponentially. If you are appearing for the defendant make sure you do not double discount. Look at employability versus a large contingency deduction and see which option would be the best.

 

Advise your actuary on any accelerated benefits received and/or disability benefits and remember not to include sympathetic employment as an income. Read your case law about this.

 

How do you read a calculation? First off you need to check that the info you provided the actuary with is in actual fact correct i.e. is all the factual information used by the actuary correct as provided by you.

 

Check the inflation rates and the discount rates used by the actuary and see if you are happy with them or if they differ substantially from the other sides calculation and ask why those were used. Make sure you are satisfied with the life tables used and that you find them applicable to your client as these may be very important not so much in MVA matters as in Med Neg matters where benefits are lifelong.

 

The calculation would be divided into various columns and tables. One for past loss before and after accident and up to date of trial. Then one for prospective earnings before and after accident. It is often referred to in case law as the "now then" and "but for" scenarios. Contingencies in these two scenarios differ markedly and you should know the difference between the two. Contingencies on the past loss should also differ on the but for and now that scenarios and should not be a globular deduction.

 

Contingencies can be deducted at the end of the matter as a lump sum but make sure you take the amount pre-contingencies on your calculation otherwise you will double discount the plaintiff. Again make sure that the discount is fair and reasonable taking into consideration all the relevant case law.

 

Actuarial calculations are not complicated but very important, don't ignore them and learn to use them in your favour.

Capacity v Productivity - An application to proceed to trial in personal injury matters?

PETER WILLIAM AGNEW v C.E BARTLETT [2009] VCC 0110

 

I came across a matter from Australia, Victoria whilst doing capacity research and found it interesting to note that in terms of the Australian Accident Compensation Act a plaintiff shall not claim compensation for personal injury for pain and suffering and/or loss of earning capacity if the injury is not "very considerable" It further needs to be permanent and likely to persists in the foreseeable future and will last and not mend or repair or at least not to any significant extent. The plaintiff has to further establish a loss of earning capacity of more than 40% by comparing after injury earning with before scenario after suitable training (being hardening or retraining).

 

It is only once this has been established on an application procedure that the plaintiff is then allowed to proceed to trial to proof the quantum. It seems to be a very good way in which to reduce legal costs overall and to weed out claims early on that are not worth the disbursements that would be expended on it. It would certainly free up time in the courts.

 

What I found interesting though was the difference that is clearly present in that of a loss of productivity versus a loss of earning capacity which is often used interchangeably in our case law and day to day dealings with each other in negotiations. I have always maintained that their is a difference between not having the capacity to do the work and not being productive to do the work and feels that their should be such a distinction and that a lack of capacity should translate into compensation which could conveniently be correlated with a contingency deduction that should be in line with the amount of loss of capacity rather than looking at a pure economic loss in terms of hours in the day or increasing the general damages as per the much reviled Deysel case.

 

The Collins Thesaurus Dictionary definition of productivity is "output" but also productions, capacity, work rate, yield and efficiency whereas the definition for capacity is "ability" and also gift, genius, capability, aptitude, aptness, competence and competency. If one looks at it in terms of this meaning then my interpretation would be that productivity requires expending energy (of a physical nature) so to speak whereas capacity requires capability (both physical and psychological).

 

As such you would have a lack of productivity if it requires more energy to do it but a lack of capacity if you simply do not have the ability to do it. Practically this would mean that in the more common injuries, say a rotator cuff injury, that if a plaintiff is simply slower at doing something and has to expend more energy to do it but you can still perform the function, I would suggest a lack of productivity but if you are not capable of lifting your arm above your head 70 times a day you no longer have the capacity to do so and the question is then if you can retrain yourself to do so in future in terms of the Australian model.

 

This seems a more fair and reasonable way in determining a loss in personal injury matters  if one keeps in mind the "once and for all" rule as the long term consequences of not having the capacity to do something would certainly have an impact on one's life. It would be worthwhile arguing and may translate into a fairer way to estimate compensation than on pure pecuniary loss alone and would take the guess work out of matters (Bailey) if a particular percentage loss of capacity is determined.

 

The AMA guidelines may be a good starting point, if a plaintiff has a certain percentage of whole person impairment and this translates directly into a physical impediment in his field of work and as such his capacity to perform such work then this may be a useful tool. An 8% WPI on a arm injury may indicate a 8% loss of capacity to use that arm in future and as such and 8% loss of ability to perform the work translating into an 8% pecuniary loss but alas that would be too easy and would not take into consideration the view of many other experts on the matter. The WPI of a person is however a good starting point to determine capacity.

 

The distinction between capacity and productivity should be considered and duly dealt with by our practitioners and our courts to ensure fair and reasonable compensation for personal injury victims and it would be worthwhile to get experts to utilise the guidelines for a determination on all personal injury matters so as to give defendants a clear picture of the plaintiff's loss.

QUANTIFICATION OF LOSS OF INCOME IN SELF EMPLOYED INDIVIDUALS

QUANTIFICATION OF LOSS OF INCOME IN SELF EMPLOYED INDIVIDUALS

 

As we calculate loss for individuals on a payslip for the most part, bank statements and further collateral information, we should not loose sight of the fact that self employed individuals may in their tax returns list legitimate company expenses but the benefits that the individual derive from his business would include such company expenses. Trying to predict the business growth of an individual in a self employed capacity versus that of a salaried employee whose wages are stable and have a clear history, for the most part, statistically in any event, is in itself problematic.

 

To compensate the individual adequately the fraction of individual or family benefit that the plaintiff derived from such a benefit should be taken into consideration when estimations on income is done.

 

A benefit to the individual and family could be salaries paid to the spouse and children and thereby inflating the tax burden of a company and reducing the income of the individual which may be real or may be at a level much higher than the norm. It is advisable to compare this income with that of the standard levels of income as determined by PE Corporate services alternatively by the Patterson levels commonly used and any unnaturally inflated income should be attributed to the individual (plaintiff)

 

Many types of such business expenses that add benefit exist. A good example is a business premises that is also the home of the business owner. The business expenses deducted for power, bond, telephone etc. may all directly benefit the home owner and would dissipate or disappear should the business fail or no longer perform at sub optimum level after the incident.

 

The amount of benefit that an individual derives from after tax benefits should also be taken into consideration for e.g. the purchase of a business computer that is taxable but used for personal use as well. A telephone or Wi Fi service to name but a few and not to mention the company car. Depreciation of assets on a balance sheet can also proof to be problematic as the real market value may differ.

 

It also needs to be taken into consideration that an individual who can no longer perform the work of a sole proprietor may be capable of selling some of the assets of the business after the incident and derive a interest bearing benefit from it. This point of view would certainly have to be argued as the plaintiff is unlikely to accept such a scenario in settlement negotiations.

 

In estimating the individual business owners profits and as such his income it may be easier to calculate the loss by placing the individual in a position of another salaried employee doing the same job and deriving the same benefits rather than trying to decipher complicated accounting statements. This can however be problematic in instances where the individual is reliant on his goodwill or the special business skill he may have derive from his years of being in the industry and a replacement may not be possible. 

 

All in all, determining earning capacity for a self employed individual needs to take place only after careful consultation with the client, forensic auditor and the actuary.

 

economica - Issues in Loss of income calculations for self employed individuals by Scott Beesley