Insurance - changes to personal injury discount

Published on 10/08/2017

Significant changes by The Ministry of Justice to the personal injury discount rate (PIDR) – a calculation used to determine lump sum compensation to claimants who have suffered life-changing injuries – means insurance buyers should quickly familiarise themselves with how it may affect their insurance programmes.

So what’s changed?

The PIDR change from 2.5% to minus 0.75% came into force on 20 March 2017. Following widespread criticism, the government is currently reviewing feedback from a subsequent consultation and the findings are anticipated in August. As it currently stands, the changes to the PIDR mean the cost of large personal injury claims (those with an element of future loss of earnings and care costs) are likely to increase significantly. Given the nature and risk profile of public sector insurance programmes, the changes to the PIDR are likely to have a major impact on the renewal terms that some insurers are offering for motor and casualty risks. 

Since April 2017, we’ve seen renewal terms offered to Marsh clients with increases of between 10 and 50%, even if these policies are part way through a Long Term Agreement (LTA). It’s also clear that the market is not approaching this challenge in a consistent manner; while some insurers are taking a clear and formulaic approach, others are entering into commercial negotiations, and pleasingly there are those that are standing by the LTA they had previously given.

How can you approach this?

To begin, start getting your strategy agreed now, even if your next renewal is April 2018. Also, brief your stakeholders, as significant price increases are always far from welcome. The key questions to be asking now are:

  • Current position with my LTA and potential extensions available
  • Current Premium and deductibles (motor and casualty)
  • Who are the current insurers, so you can determine their likely starting position
  • An idea of performance – i.e. before discount rate adjustment how was my programme running and what is the likelihood of upward pressure as a result of this
 

How to shape your strategy

  • If this is a formulaic calculation there is no reason why insurers cannot give a clear line of sight on what this means in terms of cost well ahead of renewal
  • Consider whether you regard this action as breaking the LTA and make internal decisions about the options to sanction a tender, but:
  • Be aware that the holding market may decline to bid
  • Other markets who take the same view regarding the LTA may decline to bid
  • Any extensions of cover to allow a tender will attract premiums on the new basis and other penalties
  • Explore other deductible points to mitigate the increase
  • Enter in negotiations to extend the current term in return for a “second bite” approach, whereby increases might be structured over several year
  • Negotiate with the insurer to reconsider their initial stance based on the -0.75% rate position, on the likely expectation that the current consultation process will result in a movement back to a positive discount rate
 

For more information:

 

Contact

  • Adrian Willmott, UK Public Sector Practice Leader - 020 7357 5133
  • Mark Hudman, Propositions & Development Leader, UK & Ireland, Claims Consulting Practice - 0292 043 1000
  • Or your usual client service team contact if you’re a Marsh client

This article has been written for us by Mark Hudman from Marsh, a supplier on Lot 2 of our Insurance Services II framework (RM3731)
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