Ministers have unveiled a shake-up of the measure used to determine personal injury payouts after a backlash over surging costs for motorists and the NHS.
The Government set out proposed reforms to a formula known as the discount rate, which is applied to financial awards given to victims of medical negligence, car crashes and other incidents.
The rate is a percentage used to adjust compensation totals given to those who suffer serious personal injury, according to the amount they can expect to earn by investing the money.
Claimants must be treated as risk-averse investors who are financially dependent on the lump sum, often for long periods or the duration of their life.
Awards using the rate should put them in the same financial position had they not been injured, taking into account loss of future earnings and care costs.
The system was at the centre of a furore earlier this year when it was announced that the rate would fall from 2.5% to minus 0.75%.
Officials insisted that the move was the only “legally acceptable” solution but it was met with disbelief by the insurance industry, which described the changes as “crazy” and “reckless in the extreme”.
Millions of motorists were warned to brace for increased premiums, while the Government has set aside an extra £1.2bn a year to meet the expected additional costs to the public sector, with the NHS in particular facing a rise in its bill for settling medical negligence claims.
Ministers launched a consultation in March and the Ministry of Justice (MoJ) said analysis of the feedback, along with other research, has indicated that claimants often take more investment risk than the law currently assumes.