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British MPs have recommended delaying hotly contested changes to the way people are compensated for serious injuries.

Any postponement would come as a blow to the insurance industry, which has said the system overcompensates accident victims and pushes up insurance prices.

The government announced proposed reforms to the so-called Ogden discount rate in September, but the changes still need to be approved by parliament.

The proposals could cut billions off the amount that accident victims receive in lump sum payments but could also result in lower premiums for drivers.

However, in a report published on Thursday, the Commons justice committee said the government needed to look much harder at what accident victims actually do with their money.

“We recommend that clear and unambiguous evidence is gathered about the way claimants invest their lump sum damages before legislation changes the basis on which the discount rate is calculated,” the MPs said.

When UK courts decide how much lump sum compensation to award for serious injuries, they make an assumption about how much interest the victims can earn on the money received. As a result, the lower the interest rate, the higher the lump sum must be. 

Under the proposed changes, the Ogden rate would be set using what the government calls “low-risk”, rather than “very low risk” investments. As a result, the interest rate would rise to between 0 per cent and 1 per cent, thereby reducing the amount that would be paid in compensation. 

But the justice committee warned that accident victims could be under-compensated for their injuries as a result of the proposed changes. The law should “tend towards over-compensation, or should at least ensure that there are adequate safeguards to prevent significant under-compensation of the most vulnerable claimants”, it said.

Brett Dixon, president of the Association of Personal Injury Lawyers, welcomed the report, saying: “The justice committee is to be applauded for reminding the government that it must consider the needs of injured people before changing the way the discount rate is calculated.”

He added: “The government must now stop and take time to gather robust evidence about the impact of its proposed changes on injured people. It must not be pushed into baseless reform by the vested interests of the insurance industry when the welfare of catastrophically injured people and their families is at stake.”

David Johnson, a partner at Weightmans, the law firm, who often acts for insurance companies, said “some aspects” of the report are “likely to give rise to delay in getting the legislation through, which will be a source of disappointment for insurers”.

Insurers have been lobbying hard for a change to the system, and had been hoping the proposed reforms would be pushed through parliament quickly.

The Association of British Insurers said: “It is widely recognised that reform is vital. It is time to press ahead in the interests of getting a system that is fair for everyone.”

Car insurance premiums have hit record highs this year after the government sharply increased the amount that accident victims would receive in February.

The reform announcement in September raised hopes that premiums would start to fall. The latest car insurance indices suggest that prices may have peaked.

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