Periodic payments are a method of settling personal injury claims with large future loss elements. Rather than pay the claimant a significant lump sum as has been common practice, the Government is requiring insurers to make periodic payments to the claimant for the remainder of their life.
The Courts Act 2003 makes this requirement enforceable in law, even if this was against the wishes of one or both of the parties involved. Indeed, at a recent meeting with the Department of Constitutional Affairs, it was made clear that the Act would be interpreted in ways that would be considered as being best for and favourable towards claimants, and that a settlement will be imposed irrespective of cost.
Whilst general insurers have supported the proposals to date, recent changes, partly due to Government intervention, have changed drastically the results of the cost benefit analysis originally undertaken. Traditionally, insurers would have been able to accommodate the new structured settlements regime through the purchase of an impaired life annuity. This market has always been limited, however, and is now virtually non-existent. Consequently, this means that responsibility now rests with the general insurer who will need to cover the ongoing cost.
It is clear that a number of key questions need to be asked. Brokers have a responsibility on behalf of their clients to enquire of insurers what their policy is for dealing with periodic payments. Similarly, insurers need to spell out clearly what their own policy for dealing with the new system is, and, in doing so, they will need to take into account such aspects as self funding, claims handling procedures, on-going rehabilitation, reserving against an increased tail, payment administration, reinsurance security, capital and solvency requirements.
All these issues need to be addressed and questions need to be answered very soon if we are to avoid heading towards a situation of great difficulty for the sector. After all, it is not just the direct writers who will be affected, there is also a need for clarity about the impact of periodic payments in current treaty reinsurance contracts. This is of particular concern as the new settlements will be open to future reviewability which permits the case to be reopened if the needs of the claimant have changed unexpectedly, and increased funding is accordingly required.
QBE INSURANCE IS ON STAND 37.
