2011 sees PPOs level off, says IUA

The volume of payment protection orders appears to have levelled off this year, according to a new report by the International Underwriting Association.

However, the authors caution that this apparent levelling off may be connected with an ongoing review being carried out by the Lord Chancellor of the discount rate, which determines the relative value of such awards compared to lump sum payments.

Instead of the single one-off settlements, traditionally agreed by insurers, PPOs provide claimants with annual payments for the rest of their lives.

According to the report, insurers are overcoming significant challenges in administration, reserving and reinsurance to provide for PPOs.

The authors also find that better quality data vis-a-vis PPOs will enable better risk and pricing assessment.

The IUA’s PPO Study reviews the circumstances in which periodical payments have been agreed and how they have been dealt with by the insurance industry.

IUA chief executive Dave Matcham said: “Clearly the long tail nature of PPOs 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.”

PPOs account for an increasingly common share of high-value injury claims, including a “very significant” proportion of the excess of loss reinsurance market.