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PPO propensity down 40%-50% and majority of claims settling at higher discount rate

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  • Topics:
    • Claims & Losses
    • Motor (Commercial)
    • Rates
    • Topical Trends

Aon’s Reinsurance Solutions business has announced the key findings from its UK Motor Event, an annual seminar which offers an update on trends in the UK motor insurance/reinsurance sector.

The report is split into four sections (large loss inflation, reserving, PPOs and Ogden impacts) and highlights the interaction between all of these important assumptions.


In the new Ogden discount rate environment, 2017 data suggests that the majority of large claims are settling at an estimated discount at and above 1%, with very few settling at -0.75%.


The firm’s data show that there is emerging experience of lower large loss claims inflation compared to historic levels of 5-7% when the Ogden discount rate was a consistent 2.50%.


Large loss reserving has continued to highlight that insurers are setting larger and more prudent case reserves for claims earlier than previously, even where limited information is available. This trend has been highlighted in previous studies, but there is compelling evidence that this position has further strengthened. Social media is believed to play a part in this trend.


Meanwhile, PPO propensity dropped by 40-50% in 2017 compared to historic levels. Following the introduction of the new Ogden discount rate annual awards under PPOs appear to have become larger indicating that only the more extreme cases are now settling on this basis.  PPOs are also increasingly confined to cases involving the very young and the elderly where the arguments in favour of a structured settlement are often most compelling.


Richard Evans, head of UK Motor within Aon’s Reinsurance Solutions business, said: “The Ogden discount rate has caused us to re-evaluate how we consider large motor insurance losses for the purposes of insurance and reinsurance, presenting many challenges in terms of pricing and reserving strategies. Given the potential for further amendments to the Ogden methodology, this will remain high on insurers’ and reinsurers’ agenda.”


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