The central fund is one option to create a pool for managing periodical payments, says Michael Faulkner

The market or a section of the market could come together to develop its own pool, such as a captive insurance company

' The issue of periodical payments has come to the fore again with the revelation that reinsurers are looking to wash their hands of the long-term burden of these awards (News, 20 January).

The move leaves primary insurers looking for ways to manage the uncertainty and potentially huge claims costs that come with this as yet untried form of personal injury award.

Annuities - life insurance products that pay annual sums - are seen as one possible solution to the problem. But the market is limited in this area, and while large insurers with life insurance arms may be able to arrange some sort of annuity scheme, other insurers could be left out in the cold. There are signs that the annuities market could be set to expand, presenting a possible lifeline.

For Lloyd's managing agents the problem is particularly acute. As syndicates are only annual ventures, they are prohibited from setting up annuities. Liability underwriters must therefore look for an alternative solution.

There have been some suggestions that Lloyd's itself should set up some form of central scheme for managing periodical payments. Actuaries agree that a mutual pool arrangement makes sense as it would reduce the unpredictability that individual syndicates would face from dealing with a small number of periodical payments on their own.

What form would such a pool take? There have been calls for the central fund to be used, with syndicates paying additional contributions to cover the liability. But such suggestions have been rubbished by senior Lloyd's sources. They argue it would be impossible to do so as the central fund is there to protect the market from insolvencies. To use the central fund to cover periodical payments would breach reinsurance arrangements and go against the fundamental purpose of the fund, they say.

It would seem that the current management team at Lloyd's has no appetite for change in this area.

Of course the central fund is not the only means of providing a mutual pool to cover periodical payments. The market or a section of the market could come together to develop its own pool, such as a captive insurance company. The composite market could benefit from this approach too.

The opportunities are there for an entrepreneurial company to step in and develop a solution. At a time when there seems to be so much uncertainty and confusion about the impact of periodical payments and how to manage them, the industry needs someone to take the lead.