If someone is liable for an accident, they will have to pay the injured individuals for a number of expenses.
These include:
Medical bills
Lost pay from being off work
Pain and suffering
Emotional pain; and
Many other physical, social and emotional problems
Although the expenses for the medical treatment can be easily worked out. It is harder to work out the compensation when it comes to emotional and social damages.
That is where the formula comes in.
As it can help identify the costs for the ambiguous damages that cannot be accounted for quantitatively.