Comment: Life, longevity and liability

Life/Critical Illness

A new hidden threat - or opportunity - for the protection industry?

There's a new development/threat/opportunity in life cover. It could just be an interesting change. Or it could be a multi-billion hit for some in the financial world. Or it could be a new way forward for products that are time-expired.

It's called PPO. Now, possibly many are now trying to calculate how many long lunches I've recently had or wondering just how the army of fact checkers Health Insurance employs have been too busy on updating their social media sites and have, as a consequence let such a basic error through.

But no, this is not about PPI (Payment Protection Insurance) – not even the role of media (myself included) in exposing it or a list of the excuses the banks came up with to sell it (you know, “the peace of mind” or “they had everything explained to them” lines). Instead, it really is PPO. That stands for Periodical Payment Orders and while few have heard of them, they increasingly represent a different way of settling serious motor and other injury claims to the traditional headline lump sum.

In the past, someone who suffered an accident that left them irreversibly or long term crippled would reach a settlement, either in or out of court, with the guilty party's insurer for a lump sum.

What's wrong with that? Plenty. Insurance is supposed to put people or property back in the condition it was before the incident. A crashed car is repaired, a burnt out house is rebuilt, and someone who is injured should be paid until the injury disappears, allowing them to return to a normal life.

But that may never happen to someone whose injuries are so bad they are irreparable. The best they can hope for is care for the rest of their lives.

Headline-grabbing injury settlements should provide this. They don't – thanks to the uncertainties of inflation, interest rate and investment markets, the possibility of further health deterioration, and the victim's longevity.

Whatever settlement is made, will it be adequate for continuing care ten, twenty years or more years down the line?

Cerys Edwards, now 6, was a baby when she was hit by a teenager driving at over 70mph in a 30mph zone in 2006. She suffered irreparable spinal injuries.

In February, she was awarded £5m plus £450,000 a year for the rest of her life, a sum that could be adjusted for inflation so she will be not be worse off as a result of financial events that no one can control. As the judge said in the 1999 case of Wells vs. Wells, there is a flaw in making a settlement that requires a court to second-guess the future.

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