The use of periodical payment orders in personal injury cases has not matched expectations. Michael Faulkner explains why
It has been over nine months since courts were given the power to make periodical payment orders (PPOs) into personal injury claims. But, despite the initial fears expressed by insurers about how they would deal with such orders, it seems they are not posing as much of a problem as first thought, mostly as a result of their low level of usage.
Insurers were concerned periodical payment orders, which provide claimants with regular payments rather than the traditional lump sum awards, would make claims reserving difficult, given the lack of certainty in the total sum eventually paid.
The cost of purchasing an annuity, which could be used to fund the periodical payment, was also a concern.
But since the powers came into force last April very few orders have been made, with reportedly only one instance of an order being imposed on the parties.
AXA claims director David Williams says: "The market [for annuities] is still not there. If courts were imposing them [PPOs], then that could be problematic."
Williams says that AXA is able to use AXA Life to provide annuities but is also able to self-fund the payments. "Smaller insurers without a life arm are administering them themselves."
Fortis has been involved in one periodical payment case since the legislation came into force. This involved a claim from a young man who had suffered a serious head injury.
The case was settled with a periodical payment, the claimant being paid a lump sum in addition to which Fortis bought an annuity from AIG Life to provide him with payments on an annual basis to cover the cost of his care.
Nick Gunter, head of technical claims at Fortis Insurance, says: "We have been able to close our book on this case, but are aware that in the future, cases may not be so clear-cut.
"I believe that the insurance industry should embrace periodical payments and work with all stakeholders to deliver a settlement that is best for the claimant."
Gunter adds: "As periodical payments are still a relatively new method of delivering damages the uptake to date has been relatively modest, but I expect them to become more common in the near future."
Joe Monk, a partner with actuary Lane Clark & Peacock, says there has been a "conspiracy of silence" between defendant and claimant lawyers, with the effect that periodical payment orders have not been requested. "Periodical payments are being used as a bargaining tool but are not being asked for."
Monk says that if periodical payments were linked to wage inflation, rather than the retail price index this could make them more attractive to claimants as future payments would be higher. This issue is currently the subject of an appeal by insurers.
MMA technical claims manager Ashley Boardman agrees with Monk that claimant lawyers have not been "flocking" to use periodical payments. He also agrees that if the Lord Chancellor linked the payments to wage inflation that might change claimants' appetite for them.
He says that to date, MMA has not handled a periodic payment order. He adds that it is still not clear how they will ultimately affect the insurance industry.
"If you can get annuity at a decent rate that would sort our reserving issues. But the annuity market is difficult and getting good rates depends on [the whim] of the underwriter. We would look at all options."
He continues: "There is uncertainty at the moment. There may be benefits in terms of mortality rates but no one has tracked impaired lives. It will be years before we understand the impact of periodical payment."
But Boardman concludes: "They are not the beast we thought we had the tail of last year."
Lawyers, however, argue that it is too early to judge the ultimate impact of periodical payment orders.
Lea Brocklebank, partner at Bond Pearce and vice-president of the Forum of Insurance Lawyers says claimants will ask for PPOs more frequently in the future.
She says: "Their use will increase in 'nasty' cases such as those involving children and brain injuries. But we need to wait longer for the impact." IT