Page 163 - Pharmacy Appeals 1/4/04 to 31/3/05

NHS Resolution Annual report and accounts 2021/22 139

The following are key areas of uncertainty • Claims inflation: Because of the long term nature
in the estimation of the claims provision of the liabilities, even small changes to the assumed
rate of future claim value inflation can have a
• The number of clinical claims reported to NHS
significant impact on the estimated provisions.
Resolution and lag patterns: The number of claims
Claim value inflation has historically been higher
reported to NHS Resolution's long-established schemes
than price inflation. For clinical negligence claims,
has reduced over the last couple of years since the
inflation is affected by a number of external factors
peak in 2013/14, excluding claims reported under the
such as the PIDR, changes in legal precedent
Early Notification Scheme. Nonetheless, there remains
(e.g. rules relating to accommodation costs
considerable uncertainty when projecting claim
determined by Swift v. Carpenter) and changes
numbers in the future, due to the changing claims
in legal costs. The variety of potential external
and healthcare environment and resulting instability in
influences on future claims inflation means that this
past claim trends. Although we have allowed for the
assumption is subject to significant uncertainty.
assumed impact of Covid-19 reducing the number of
claims we are likely to receive from activity in 2020/21, The HM Treasury PES discount rate note from December
clinical activity appears to have recovered to pre­ 2021 (which specifies the financial assumptions to be
pandemic levels in 2021/22. used for valuing provisions at March 2022) states that
all cash flows should be assumed to increase in line
Estimating the ultimate number of claims is
with the OBR CPI forecasts unless certain conditions
complicated by the fact that clinical negligence claims
are met for this assumption to be rebutted. These
can take a number of years to be reported following
conditions are set out in Paragraph 36 of Annex B
the incident that gives rise to the claim. The IBNR
of to the HM Treasury PES note PES (2021) 10.
provision depends on an assumed time lag pattern
for how claims are reported to NHS Resolution For NHS Resolution's IBNR provisions,
following the incident. If the true pattern of reporting these conditions have been met:
is faster than that assumed, this may mean that the
Condition 1: there is a logical basis for not applying
number of IBNR claims has been overestimated,
OBR CPI inflation rates, in that the proposed alternative
and vice versa. Changing trends in this pattern over
inflation rates would be clearly more applicable to the
time, for example as a result of changes to the legal
underlying nature of the cash flows. For NHS Resolution,
environment, the introduction of the Early Notification
past claims inflation and the mandated rates of PPO
scheme (leading to earlier reporting of incidents and
increases have been demonstrably different to CPI
claims), increased awareness of the availability of
increases, so the assumptions for future inflation rates
compensation and potential disruptions owing to
have been selected to reflect the historical data.
Covid 19, increase the uncertainty in this assumption.
Condition 2: the proposed alternative rates must be
• Claims settling as PPOs: PPOs remain a key
free from management bias. An indication of this
area of uncertainty, given the high value of PPO
may be an independent or professional assessment
settlements, the limited stable past data to base
of the proposed alternative inflation rates, such as by
future claim number projections upon and the
a committee, third party or other experts. The claims
changing propensity to award PPOs to claimants.
inflation assumptions have been based on the actuarial
PPO claim settlements are paid over the lifetime
adviser's assessment of historical claims inflation,
of the claimant, and consequently there are
which have then been reviewed and adopted by
additional inflation and longevity uncertainties,
NHS Resolution's Reserving and Pricing Committee.
compared to equivalent lump sum settlements.