UKC

Any experts out there can explain what she is trying do do here as it all looks a bit of a mess.

https://www.theguardian.com/business/2017/feb/27/nhs-faces-new-1bn-annual-b...

In reply to Offwidth:

I expect that it's probably down to her transferable skills from when she was Secretary of State for the Environment? She made a great impact on Chinese pork markets, and may be hoping to do the same with insurance markets:

youtube.com/watch?v=bRhlRM6rYck&

In reply to Offwidth:
Im looking at this primarily from an insurance perspective, hence the terminology, but the principles transfer...

When assessing the settlement cost for big personal injury claims (the sort of thing where you may for example need to pay for a carer for life, that sort of thing), the court looks at what the ongoing payments are, which will be based on the care required, the cost of that and the rate at which it inflates, the life expectancy given injury, etc.

The discount rate she has just changed is the factor used to convert that stream of payments into a single lump sum. Reducing the rate increases the lump sum cost of providing the same payments.

The rate is set based on the rate of interest on fixed and index linked government debt. It's set like this on the assumption that people would invest the lump sum in those sorts of assets. It hasn't been updated for a while (6yrs?) and so the dramatic change in the rate is essentially capturing all the movement in (long term, I assume, although I don't know the precise method/term) interest rates over quite a long period.

Edit: just to note a reduction was widely expected (and the courts were showing a greater tendency to award the payment stream itself rather than the lump sum, potentially partially as recognition it was too high although I don't know) just not this far. I think a few firms had gone public with the rate they were assuming in their year end valuations and there seemed to be a few assuming about 1%...

In reply to Clauso:

Didn't she also write a snooty book about punctuation? Is there no end to her talents?

In reply to Clauso:


Not forgetting the great cheese importing scandal:

youtube.com/watch?v=n_wkO4hk07o&

She certainly knows how to work an audience. We're in safe hands.

In reply to Dave Garnett:

Arg, stop! The cringe! It burns!

In reply to Dave Garnett:


She's right, you know... I, for one, certainly don't want my Gouda originating from Gouda; I want it from the Gower. I don't want my Emmental from Emmental; I want it from Embsay. And I want my Camembert from Cambridge.

... Basically, I'm highly suspicious of foreign cows. You know where you are with a good British cow?

In reply to Clauso:


But isn't Embsay Regal a smoked cheese?

In reply to Offwidth:

Despite everyone being aware that the calculation basis for the Ogden discount rate is flawed and out of date, she has decided to recalculate the rate for the first time in 15 years and has completely screwed anyone who has long term liabilities that are calculated via this rate.

in simple terms: Say you were injured in an accident and it was agreed that you would need £10,000 per year to pay for your care for the next 10 years and this would be provided by the insurance company concerned.

There are various options open to you -
1. the insurance company pays you £10,000 on the first day of each year for 10 years.
2. the insurance company pays you a lump sum immediately to cover all 10 years that you invest and spend as you like.... however as money right now is more valuable than money in the future, the amount is discounted to take this into account.... so in this (uncalculated example) would say give you £90,000

Truss has now changed this from a discount rate of 2.5% to a rate of -0.75%

As a result there is going to be a massive demand for capital to offset potentially increased future liabilities.

This will cost the NHS a fortune, and any other large Gov procurement operation, your car insurance, house insurance and energy bills will also jump as a result.


Truss is even stupid enough to tell people that "she couldn't do anything with the way the law is written" so this begs the question why she did something without sorting out the law first. no one else in the last 15 years was quite so stupid

In reply to balmybaldwin:


Perhaps because, despite being Lord Chancellor, she knows nothing about the law?

In reply to Dave Garnett:


I suspect you are right. She does appear to be the singularly least appropriate person in that position (certainly in my memory)

In reply to balmybaldwin:


Against a strong field including Chris Grayling and Michael Gove...

In reply to Offwidth:

I'll put my head above the parapet:

A court decides a person disabled by the NHS needs £10k per annum to live on. They are expected to live for a further ten years.

The NHS, who has been found wanting in the standard of care delivered is liable to pay for the injured parties on-going care.

The person is given a lump-sum to invest, and that needs to generate the £10k PA for the rest of their life. The assumption is that the person will not want to 'play the stock market', but rather invest the lump sum into something that is ultra safe and secure; I.e. Government bods (Gilts)

In these low interest times, the government is admitting that the assumed return the investment would realise would be a lot lower than the statutory figure (2.5%) and that a figure of -0.75% is more realistic (Interest/ yield generated, minus inflation).

It seems to me that the government has actually done something reasonable for victims with this change, or do you think the innocent victims should not have enough to live on, to keep our motor insurance premiums down?

In reply to blurty:

Cheers for the attempt... I understand about the discount rate and I get what you are saying, it's why it needed to change so much right now where I was looking for an explanation. Also if there were other motives for the change than those presented by the department.

Victim payouts, big increases in insurance premiums and especially serious extra pressures on the NHS seem like a huge story to me needing headline status and some proper analysis.

In reply to Offwidth:

I covered the reason for the size of the change above - a large accumulation of years of changes all in one go.

As for the timing, from what I remember the personal injury lawyers association forced a government review of the rate which kick started this stage of the process.

The industry body argued for a review of the method of calculation rather than just an update of the calculation.

The government rejected this and has announced a change essentially based on the existing rate but also a review of the method of calculation to kick off before Easter.

In reply to AJM:

In my opinion, a mess because she is effectively saying investment will never beat inflation, and if that is the case economics and our pensions need a big revision

In reply to Offwidth:

You can tell by all the ambulance chasers that have come out in support how much this is going to cost.

The implications for government bonds is also rather unsettling

In reply to orejas:

On government debt, yes, but she's only saying that because of what the market has priced. It seems silly on one level but then we do all expect interest rates to be outpaced by inflation for a while, that's what the government debt market has priced and that's therefore what this formula has come out with.

To my mind the questions over frequency of update (some sort of automatic formula) and the assumption that people would really only invest in gilts are the ones I'll be interested to see the review answer.

In reply to balmybaldwin:
Or it's a breathtaking bit of damage limitation by our upstanding insurance companies, who have been involved in intensive and very successful government lobbying for the industry for the last couple of decades. Notice how it's the NHS that is the lead In this story, not the impact on a very shady aspect of the financial services sector.

In reply to Offwidth:

Not my usual user name.

The Guardian article was churnalism, an almost total rehash of the ABI press release.

This adjust relates to very few and generally higher value cases where there is a significant future loss: for example if you are injured and unable to work aged 62 then the application of the Ogden tables to your loss of earnings will be a moot point, however if the accident occurred when you were 42 they would be applied. (of course future case & etc may still be relevant at 62).

The need for the discount rate to be set centrally is a matter of law and the ABI brought proceedings to challenge the change not because of some higher ethical duty but because it would cost them £Ms in profit.

Defendants can avoid offering lump sums by settling cases with a provisional damages clause i.e. where there was a risk that the claimant's condition could deteriorate seriously in the future, so that, for example, the claimant ceases to be mobile and becomes wheelchair bound) or by means of a provisional payment order: i.e. the claimant receives a lump sum for their general damages (pain suffering and loss of amenity) and special i.e. financial damages to date and thereafter a yearly annual sum.

Defendant insurers hate both and will often fight tooth and nail to avoid PD and or PPO (as it keeps the risks open on their book which is a bugger for reserving and Basell III) we recently had a case where for the Claimant we argued PPO and the defendant did not agree so we had a 4 day hearing in the High Court with two leading silks. The J was that there should be a PPO. Costs on the PPO point exceeded £200k.

This change now means that seriously injured claimants are properly compensated. The ABI and its members have been aware of this change for a long time and have in reality prepared for it and adjusted premium rates accordingly. They are just pushing out this 'fake news' in an attempt to maintain their profit levels.

The ABI is about to shaft the ordinary claimant and all those who pay for car /bike insurance in the following ways.

1. They are going to increase the threshold at which the defendant is liable to pay costs from £1k i.e an injury persisting for say 6 weeks to £5k i.e. an injury which lasted well over two years.

The consequence is that you can still bring the claim for injury, loss of earnings, damage to your car etc, but you'll have to meet the costs of this yourself, in other words unless you have an insurer funding the claim you won't be able to have access to a lawyer (unlike the defendant who will have the defence of the claim covered as of right).
The net effect is you will get shafted as you will not think it worth the hassle to spend 6 months litigating to potentially recover £100.

If you lose a few weeks wages, and a job as you can't afford to get your car repaired? Oh boo hoo stop sucking at the teat of the compensation culture <sarcasm>.

2. The insurers will ramp up the costs of legal expenses insurance. At present >90% of the cost of LEI goes in commissions. This will also shift the moral hazard from the liable to the innocent.

3. Claims costs have been falling and falling steadily since 2010 with the introduction of the MoJ portal and the 'Jackson' reforms. Despite this premiums have increased year on year.

The reason for this is that the ROI on the premiums invested have been below trend since 2008 and very little of the profit insurers make is from direct premium.

As for the nonsense that we have weaker necks than our European cousins, we do not. It is just that the difference in the legal systems means that in continental systems the damages are so low that it is not worth claiming and this is why there are so few claims. In Eire the quantum of damages is a multiple of at least 3/4 on what is recovered in E&W.

4. This change will make little difference to the costs of clinical negligence. The primary reason why clin neg cases that are successful are increasing is the poor management of negligent doctors in the NHS (cover it up and persecute the whistleblowers) and that they defend the indefensible at great cost.

But back to the point, Discount Rate and thresholds for Small Claims and Multi track should be reviewed on perhaps a biennial basis rather (in the case of the SCT limit 26 years) and decisions like this always create a 'cliff edge'.

Lizz Truss may be dreadful LC but that is a moot point, this is a change that is long overdue and should be welcomed.

In reply to Peccavitoo:

There are a few technical points in your response which make me doubt the otherwise confident tone:
- Solvency II not Basel 3 - that's banking
- Periodic payment order, not provisional payment order

This will undoubtedly cost the industry on past claims, reinsurers probably most of all. Future claims it will be added into premiums. Whilst I don't work in pricing if companies were using 1% as an assumption for reserves it would seem odd for them to be nearly 2% more conservative in pricing and if premiums were based on 1% then of the answer is now -0.75% then further adjustments are clearly likely.

Whilst you are correct that insurers don't like PPOs much, since the lump sum for a given set of payments has just gone up there is the potential outcome that fewer cases will settle as PPOs rather than lump sums in future.

In reply to AJM:

Sorry, quite correct re PPO my brain was not quite in gear, as for the solvency thing, not an underwriter but a lawyer.

D insurers have not liked PPO's for some time and don't even mention having a Guardian!

In reply to Peccavitoo:

my mrs has grumped about unreasonable defendant insurers wasting court time for years, but the guardian in particular have always printed ABI press releases uncritically as news stories.


The only real downside of marrying a despicable ambulance chaser is the constant evil laughter and the fine hairs from that enormous white cat she keeps around our secret volcano lair. Wish we had more of a garden though, I can't get dahlias to grow in the magma

In reply to toad:

You could have told us there were piranha in the swimming pool.

In reply to Offwidth: thought the mutant aligators had seen them off