My Lords, in supporting Amendment 55, I will speak also to Amendment 92A. I declare my interests as listed on the register of the House, especially those in respect of the insurance industry. I can be very brief, because there have been two brief and excellent speeches before me.
4.15 pm
I have a couple of points to make about PPOs, taken from the training programme on the Chartered Insurance Institute website. PPOs are for future care and case management costs. Secondly, the institute identifies a third big advantage of PPOs: the management of inflation risk, quite apart from investment risk and mortality risk. Three areas are problematic at the moment for PPOs. The first is that the propensity to take up PPOs is dropping. Secondly, that drop has been accelerated dramatically by the discount rate issue which much of the Bill deals with. Thirdly, there are concerns about the indexing of PPOs. The amendments consider three sets of solutions. The amendments in this group, particularly Amendment 55 and that of the noble Lord, Lord Sharkey, try to give a push to PPOs to stop the general drift downwards in the propensity to use them. The discount rate issue is of course the
target of Part 2 of the Bill, and my Amendment 92A, of which more in a second, is aimed at the third issue I identified: indexing.
On Amendment 55, the Institute and Faculty of Actuaries publishes on its website the propensity for the take-up of PPOs for large motor claims. Between 2010 and 2012 inclusive, it was 35%. By 2015 it had dropped to below 25%, and in 2016 to below 20%. That is wrong, and anything we can do to nudge that back up to the steady-state—I would hope, at least 35%—must be good news.
On indexes, the interesting leading case of Thompstone v Tameside and Glossop is mentioned in Amendment 92A. It is an Appeal Court case reported in 2008 which brought four appeals at first instance together. It was designed to create a leading case for PPOs. All four are very similar and harrowing cases where the issue was whether the indexing should be RPI or an Office for National Statistics index called ASHE 6115. The judgment, which is a long and careful one written in nice, clear language, is very strong. But in all four cases it was found that ASHE 6115 was the appropriate index, and thus it became the rebuttable presumption—in commercial terms, not legal terms, I hasten to add—that that index should be used.
Ten years on, it does not look quite as good as it did in 2008 and I have three concerns. The first relates to the progression of time. The percentage of PPO money that is used for care and home care wages shrinks, simply because we now have better equipment, amazing machinery and beds that cost £10,000. Quite simply, an increasing percentage of the money is being used for things other than wages.
Secondly, effectively, ASHE 6115 ceased to exist in 2011, and the Office for National Statistics had to create an ersatz ASHE 6115 because of the requirement to do so. At the head of today’s ASHE 6115 statistics, there is a whole sheet of paper explaining how ASHE 6115 has been recreated. Crucially, like-for-like figures are given for 2011, and they differ by 1.6%. In other words, the new format is rather less generous. ASHE 6115 in 2018 gives a very different figure from the one that judges were considering back in the case of Thompstone.
If that has been enough to make noble Lords wobble a bit, the thing that turned my wobble into something very serious was the simple set of figures showing what would have happened if someone had been awarded £100,000-worth of damages per annum at the start of 2010. By December 2015, on ASHE 6115, that £100,000 would have been indexed up to £100,495 which is an aggregate increase over six years of under 0.5%. The RPI over the same period would have indexed up to £115,225—15% more. I am again obliged to the Chartered Insurance Institute training website for those figures. It means that for that period, Mr Thompstone—the facts are very harrowing—has done pretty badly. For that reason, I feel the time has come to have a look under the bonnet and see whether what I am sure was a good decision in 2008 needs to be thought through again. The purpose of Amendment 92A is to ensure that that happens.