Page 164 - Pharmacy Appeals 1/4/04 to 31/3/05

140 Financial statements

Condition 3: the inflation rates instead applied should • Legal environment: The legal environment is
be based on logical and relevant calculations and a particular area of uncertainty. DHSC published
reasonable underlying assumptions. For example, they a consultation in January 2022 proposing the
may be comparable to existing financial indices or based introduction of Fixed Recoverable Costs (FRC) in
on historical trends. The claims inflation assumptions lower value clinical negligence claims (generally
adopted have been based on historical claims data claims with damages valued at £1,500-£25,000).
as well as making references to historical levels of The consultation proposed that an FRC scheme apply
other indices, such as the Annual Survey of Flours and to claims notified on or after the implementation
Earnings (ASFIE), and assumptions for price inflation. date. The consultation closed on 24 April 2022, and
assumes implementation no earlier than 2023/24.
As a result the claims inflation assumptions are derived by:
Because this is a consultation there is no certainty
• First, looking at nominal increases in average claim as to whether the FRC scheme will be introduced or
costs over past years by reserving segment; and what it will look like. As a result, the potential impact
of FRC is too remote to be included in the provision
• Then adjusting this to reflect any significant differences
as at 31 March 2022. This will remain under review.
in expected future inflation in the economy compared
to observed historical inflation over the recent past. The provisions have been valued using the current
Personal Injury Discount Rate (PIDR) of minus
The majority of PPOs have payments linked to the
0.25%. The Civil Liability Act 2018 introduced a
retail price index (RPI) and/or ASHE 6115 (a wage
process for periodical reviews of the PIDR. As there
inflation index) and the future rates of increase in these
is no certainty on the outcomes of future reviews,
indices are uncertain. In particular, ASHE 611 5 relates
no adjustments have been made to the IBNR or
specifically to care and home workers and external
known claims provisions for the potential effects of
factors impacting this market in recent years have
such changes at this stage. However, the recently
increased the uncertainty in setting this assumption.
announced PIDR in Northern Ireland provides an
Further, the reforms announced to RPI will result in a
indication that, if the PIDR in England and Wales had
change in the way that RPI is determined in 2030.
been reviewed and updated recently then the rate
• Life expectancy: The provisions in respect of settled

might be around 1% lower than it currently stands.
PPOs are sensitive to the assumed life expectancy
Our sensitivity analysis shows the impact of changing
of claimants. Each claimant's life expectancy is
the PIDR and shows the CNST IBNR would be around
estimated at settlement by medical experts. The

£1.3 billion higher if the PIDR was 1% lower.
actual future lifetime of the claimant may differ
significantly from this estimate. Furthermore, it is
difficult to determine whether the life expectancies
estimated by medical experts will prove to be
too long or too short on average across all
claimants. The average life expectancy of claimants
could also be influenced by future advances in
medical care or other events (e.g. epidemics).
• Covid-19: As with last year's provisions, there
are additional assumptions made, and hence
uncertainties in the provision, as a result of the
impact of Covid-19. Broadly speaking there are two
offsetting factors of the pandemic on the provisions:
expected lower claim numbers from lower clinical
activity in 2020/21, offset by new risks and potential
sources of claims as a result of the response.