PPO fears threaten UK motor reinsurance capacity

UK insurers could find it increasingly difficult to obtain motor excess-of-loss reinsurance coverage because of concerns about periodic payment orders (PPOs), according to reinsurance broker Guy Carpenter.

In a report on the 1 January 2012 renewals, Guy Carpenter wrote: “For the first time in a number of years, there were signs that motor excess-of-loss capacity may become an issue for insurers. The PPO issue is still unresolved and is likely to be a major factor at the next renewal.”

UK courts are increasingly awarding PPOs, rather than one-off lump sums, to injured parties in motor bodily injury cases. Because the cost of care for injured parties can increase over time, many believe the growing PPO use is inflating claims costs for UK motor insurers.

In its renewals review, Guy Carpenter said that the increasing use of PPOs was a concern for virtually all reinsurers. Reinsurers have reacted differently, the broker said. Some have pulled out of the UK motor market altogether and others have moved to higher-risk layers on reinsurance programmes. On the other hand, some reinsurers have sought to lower the trigger-point for reinsurance payments in contracts because they consider the threat from PPOs to be greater in contracts with higher trigger points.  

Insurance Times reported in November that Munich Re was being more selective about UK motor excess-of-loss business because of rising bodily injury claims and the use of PPOs.

Quoted rates at the renewals for UK personal lines motor reinsurance were between 10% and 30% higher than the previous year, Guy Carpenter said, with rates for firm orders up by between 15% and 25%.

Rate increases for commercial motor reinsurance were more varied, the broker said, with the overall level of increase depending on the original rate increases applied, composition of the portfolio and the overall performance of the account.

Guy Carpenter noted that because of some reinsurers’ shift away from excess-of-loss motor reinsurance, demand for proportional motor reinsurance in the UK has increased. However, it added that there remains an abundance of proportional capacity.

Excess-of-loss reinsurance, also known as non-proportional, pays out when client losses hit a certain point. With proportional reinsurance, also known as quota-share, the reinsurer pays an agreed percentage of all losses incurred by the client.