PROMINENT ECONOMIST Colm McCarthy has called for debate on the structure of damages payments in personal injuries cases, arguing that lump-sum payouts may not be the best option.
Addressing a briefing at Beauchamps Solicitors in Dublin yesterday, Mr McCarthy said the lump-sum system was flawed and suggested “structured settlements” may be a good alternative.
This would see successful plaintiffs in personal injuries cases receiving a two-part settlement – an initial capital payment and an index-linked annuity for the remainder of their life.
The initial payment would cover upfront costs such as medical expenses already incurred and general damages, while the annuity would secure an income for as long as the plaintiff needs it.
Mr McCarthy, who was chairman of the Special Group on Public Service Numbers and Expenditure Programmes, said structured settlements would mean plaintiffs would no longer carry “longevity risk”, where they may live longer than anticipated when the award is made.
They would also eliminate “investment risk” for the plaintiff because an index-linked annuity, linked ideally to inflation, would guarantee an annual payment rather than requiring them to organise their own investments.
Plaintiffs are generally not as well-placed as pension-fund investors to “ride it out”, according to Mr McCarthy.
He said an annuity-based system would also avoid the over-compensation of some plaintiffs and the under-compensation of others. Over-compensation would occur where the plaintiff’s life ends sooner than expected, thus leading to a windfall for relatives.
One problem in the Irish marketis that index-linked annuities would require the creation of index-linked Government bonds.
Mr McCarthy suggested Nama could move in this direction, possibly in collaboration with the State Claims Agency. Insurance companies would also need to approve a new system. Mr McCarthy acknowledged this may present difficulties, since an annuity-based system would make it hard for insurers to “rule-off” on particular cases.
