Since their implementation in 2005, Periodical Payment Orders (PPOs)—which allow the majority of a claim to be paid to individuals in installments rather than purely as a lump sum, often for the duration of the claimant’s life—have become increasingly common in the UK for serious motor-related injury claims.
However, their rise and the uncertainty surrounding settlements have made reinsurance purchasing for UK motor insurers increasingly challenging. Concerns around PPOs have even prompted some reinsurers to reduce their exposure. Ultimately, this trend has led to less choice for reinsurance buyers and overall rate increases for UK motor excess-of-loss re/insurance.
PPOs in Decline?
According to our latest UK Motor Development Review, which surveys two thirds of the UK motor market by premium volume, the number of PPOs awarded in the UK looks set to decline for the first time since their implementation.
There are two potential reasons for this change:
- Investment conditions are now more positive than they were back in 2005.
- The ASHE index (which is used as a benchmark for PPO payments) has fallen into negative territory.
Against these two factors, claimants in today’s environment are more likely to see the benefit of a larger, upfront payment than facing potentially supressed instalments over time.
A Stabilising Environment
Clearer trends are also now emerging around PPOs, with courts and legal teams establishing more defined patterns when dealing with how PPOs are awarded and settled.
This is an encouraging trend for the UK motor re/insurance industry: The levelling in the number being awarded and the increasing consistency around PPO payments will lead to more certainty around the potential financial impact for re/insurers.
So the findings of this year’s report should provide considerable comfort for the UK motor re/insurance industry. The sector will have a more stable environment within which to offer and price excess-of-loss reinsurance and this will ultimately benefit insurers and the end buyer of motor liability insurance in the UK.
More About the Willis Re UK Motor Development Review
Now in its tenth year, the Willis UK Motor Development Review is an annual report, which surveys approximately two-thirds of the UK motor insurance market (based on gross earned premium). The study examines patterns in large motor claims and assesses the current state of the UK motor re/insurance market. For a summary of the key trends highlighted within the review, further market commentary and for more information about the study, click here.