Periodical payments in personal injury claims are unpopular with defendant insurers, but Brian Williams argues that they have a future



Periodical payment orders in personal injury claims have received a cool reception in their first year. While a good idea in theory - the aim is to achieve the most appropriate form of compensation for the injured, particularly those with substantial needs for long-term care and where there is an issue of life expectancy - the take-up has been very limited.



Practicalities often make them less desirable for insurers than a lump-sum payment, and claimants prefer to have the money in the bank so they can have certainty.



It was said when the legislation was introduced that the provisions would be cost neutral, and it was even suggested that insurers would achieve savings of around 4% by purchasing annuities compared to a lump sum, albeit subject to changes in annuity rates.



Despite these expectations, the financial consequences for insurers are potentially enormous. For example, on the lump-sum basis the claimant's care needs in one case came to £1.5 million (30 x £50,000 per annum), but the purchase of an annuity to provide for the care needs at the same level would have cost almost double. Self-funding by the insurer has challenges, such as continuing claims management and the complications of reserving and reinsurance. It is understandable that defendant insurers and their advisers have an aversion to the new provision and prefer to close the book with a lump-sum settlement.



The claimant, too, usually prefers to have a substantial lump-sum award, notwithstanding any investment advice received. Although the latter is often a tactic used by claimants' advisers to persuade defendants to pay a premium to dispose of the case on a lump-sum basis, claimants generally want to manage their own financial affairs, including the administration of a lump-sum award.



The decision in July of the Court of Appeal in Flora v Wakom (Heathrow) Ltd (2006) EWCA Civ 1103 has established the principle that periodical payment orders can be linked to an index other than the retail price index. Claimants' advisers can now argue that a more appropriate index, such as one linked to wages, should be used, making periodical payments even more costly for defendants. Defendants' advisers will need to bring in expert evidence to rebut. The initial result of this decision, which is to be considered by the House of Lords, is likely further to dampen insurers' enthusiasm for periodical payments.



But unpopularity is no reason to ignore a just means of making proper provision for long-term care needs. My interpretation of section 2(1) of the Courts Act 2003 is that the court must consider periodical payments as part of the compensation package, and can make such an order even if the parties do not consent.



Despite a lacklustre early performance, the likelihood is that periodical payments will become more frequent, especially in cases where the claimant is a patient and liability is not an issue, as claimants' lawyers recognise the advantages to their clients of certainty with secure payments sufficient to meet long-term needs, increasing at least in line with inflation. Furthermore, judges will have to be satisfied that periodical payments have been properly considered. Conversely defendants may prefer them instead of a lump-sum payment where life expectancy is an issue, since the periodical payments will cease on the death of the claimant.



Brian Williams is the senior partner and chairman of Kent and London firm Vizards Wyeth