IUA Study Reviews Impact of Periodical Payments Orders

Marine Insurance, Organisations — By on November 14, 2011 at 12:34 PM

The future of use Periodical Payments Orders (PPOs) remains uncertain, a new study by the International Underwriting Association has revealed.

The number of PPOs awarded has seen a marked increase since 2008, though there appears to have been a levelling out in 2011. This could, however, be due to an ongoing review by the Lord Chancellor of the discount rate, which determines the relative value of such awards compared to a lump sum payment.
Periodical Payments Orders were introduced in 2005 to make claims payments for personal injury more accurately reflect losses suffered. Instead of a single one-off settlement they provide claimants with a stream of income that can take better account of life expectancy and changing care needs.

Insurers have generally encountered PPOs in a relatively small percentage of serious injury cases, though as a proportion of high-value claims they are much more common. In the excess of loss reinsurance market, they now represent a very significant proportion of overall injury claims spend.

The IUA’s PPO Study comprehensively reviews the circumstances in which periodical payments have been agreed and how they have been dealt with by the insurance industry.  It shows that insurers are overcoming significant challenges in administration, reserving and reinsurance to provide for PPOs.

IUA Chief Executive Dave Matcham said: “Clearly the long tail nature of Periodical Payments Orders presents insurers with a much greater level of uncertainty than the payment of a single lump sum.  Nevertheless the industry has adjusted well and understands that they are here to stay as they are the safest form of award for a claimant and remain the most accurate method of quantifying damages for future financial losses. The prevailing financial environment, the rate of pay inflation for carers and the reform of legal costs will all have an impact on the future popularity of such awards. But the outcome of the Lord Chancellor’s review of the discount rate could prove particularly crucial.”

Clive Archer, Chairman of the IUA’s PPO Working Group commented: “When compared to traditional lump sum cases, the reserving and settling of claims involving periodical payments is much more complex.  As the number of such cases grows reinsurers should be able to develop a better understanding of the impact and requirements of such cases. Better quality data in this evolving area of claims settlements will enable better risk and pricing assessment which should prove to the benefit of all involved.”

The IUA’s PPO Study is available to freely download from the association’s website (www.iua.co.uk) or contact Patrick Davison on 020 7617 4459 (patrick.davison@iua.co.uk).

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