Willis Re's Turner on why PPOs are ceasing to be a threat

By giving courts the power to structure a claimant's compensation as a series of annual payments for the rest of their life, rather than as a simple single lump sum, PPOs changed the game for a number of stakeholders.

They forced non-life insurers to consider the implications of becoming quasi-life insurers for some of their largest claims. They presented all manner of accounting and reserving implications. And they dramatically impacted excess of loss reinsurers' views on the value of the product they are providing to motor insurers.

Since original motor policies in the UK are required by law to be unlimited, motor insurers invariably purchase excess of loss protection to transfer this risk. And one predictable consequence of the escalation of PPOs was an impact on the supply and pricing of the excess of loss product. Motor insurers were invariably paying significantly more for their excess of loss in 2016 than they were in 2012.

Encouraging numbers
Willis Re's most recent review of motor claims trends in the UK provides some encouraging findings both for reinsurers, and for their clients. For the second year in a row, there has been a levelling off, and even potentially a fall, in the number of PPOs being awarded by the courts.

This is an extremely important development. A reduction in PPO numbers will stabilise the environment for insurers and critically will allow reinsurers to reduce loadings for uncertainty within their pricing models.

XOL reinsurers have a variety of techniques for modelling the impact of PPOs, but these will invariably result in a loading to reflect the increased capital cost of holding claims open for decades into the future. Put simply, fewer PPOs means less uncertainty loading from reinsurers, leading to a more stable marketplace.

No-one is realistically predicting the demise of PPOs as the preferred method of settling serious injury claims, but the increased predictability of the landscape is feeding through to a much easier environment for motor insurers to negotiate their excess of loss renewals.