UK motor PPO environment is stabilising: Willis Re
The number of periodical payment orders (PPOs) awarded in the UK looks set to decline due to a stabilisation of the PPO claims environment, according to the latest UK Motor Development Review by Willis Re.
PPOs, which see the majority of a claim is paid to individuals in instalments rather than purely as a lump sum, often for the duration of the claimant’s life, have become increasingly common in the UK for motor-related injury claims since their implementation in 2005, according to Willis Re.
The firm states that their rise, and the uncertainty surrounding settlements, has made reinsurance purchasing for UK motor insurers increasingly challenging, saying that concerns around PPOs have prompted some reinsurers to reduce their exposure.
This trend has led to less choice for buyers and overall rate increases for motor re/insurance, according to Willis Re
The firm’s new review however found that more positive investment conditions set against a falling Annual Survey of Hours and Earnings (ASHE) index. which is used as a benchmark for PPO payments, have prompted a drop in the number of PPOs awarded, with claimants in today’s environment more likely to see the benefit of a larger, upfront payment than facing potentially suppressed instalments over time.
The review’s findings also show that clearer trends are now emerging around PPOs, with courts and legal teams establishing patterns when dealing with how PPOs are awarded and settled.
This is encouraging for the re/insurance industry and therefore ultimately for the buyer of motor insurance, according to Willis Re, as the levelling of PPOs and the increasing consistency around their payments will lead to more certainty around the potential financial impact for re/insurers, and therefore fairer pricing for UK motor re/insurance overall.
“The findings of this year’s report should provide some comfort for the UK motor re/insurance industry,” said Grange Turner, executive director at Willis Re.
“With a stabilisation in the total number of claims settling as PPOs, and now that clearer patterns are starting to emerge around payments, the sector will have a more certain environment within which to offer and price excess of loss reinsurance, ultimately for the benefit of insurers and the end buyer of motor liability insurance in the UK.
“Participants in the Willis Re study gain significant benefit not just from the scale of the data-set but also from our modelling of trends in the claims environment. This helps optimise decisions about the structures of the reinsurance programmes they place and the overall value of reinsurance.”
Turner also said that the study allows the firm to see broader trends in the market than can be identified by looking at individual insurers in isolation, and, when appropriate, enables us to challenge the assumptions used by reinsurers in their pricing models.
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.
