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Periodical payment orders

When properly insured individuals are injured in an accident, it is right that they are compensated for any resulting reduction in their quality of life. The UK’s insurance arrangements ensure that when someone is injured, they are covered for the most severe of eventualities. The IFoA believes that the needs of injured parties should be at the centre of any compensation paid in these situations.

Use of PPOs

In the case of a lump sum award for a personal injury claim, the claimant is essentially asked to take responsibility for investment, inflation and longevity risk, ensuring they properly invest and manage this often very large sum of money, whilst also budgeting appropriately so that the money does not run out before they die. Awarding a PPO is an effective way to stop the individual from having to shoulder these risks, and instead placing them with the insurer (or the NHS in the case of clinical negligence claims).

The IFoA has been engaging with policymakers to explore a policy approach that considers a PPO as the preferred settlement option. A lump sum should only be considered when the claimant, or their advisers, can demonstrate they fully understand the risks of not accepting a PPO and that a lump sum is more appropriate for their needs.

Download IFoA's briefing to MPs for the Civil Liability Bill.

Recent Developments with the Discount Rate

In February 2017 the then Lord Chancellor announced a dramatic reduction in the discount rate for personal injury claims, from 2.5% to minus 0.75%. Subsequent to this, the Ministry of Justice (MoJ) has consulted on how future changes to the discount rate used for the calculation of lump sum should be determined. The IFoA responded to the consultation and were invited to give oral evidence to the Justice Committee on the setting of the rate, and other related issues. IFoA messaging around the discount rate included our support of the use of periodical payment orders (PPOs) as a more appropriate way to compensate to catastrophically injured.


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