Financial consultancy Broadstone says a jump in care worker pay will hit the costs attached to the Periodic Payment Order obligations of UK motor re/insurers. PPOs are court-ordered settlements that insurers have to pay to claimants who have suffered catastrophic injuries.

The lifelong payments are linked to carers’ gross hourly earnings and data from the Office for National Statistics’ Annual Survey of Hours and Earnings shows a rise of rise of 7.25% in the benchmark. The jump comes on top of the 4.2% rise recorded last year and the 7% hike in 2023.

Cormac Bradley, senior actuarial director at Broadstone, said: “It significantly outpaces CPIH inflation at 4.1% and median weekly earnings growth of 5.3%, underscoring the volatility inherent in care sector wages and the ASHE methodology.

“This will exceed most insurers’ expectations and will have immediate implications for reserving, reinsurance pricing and capital adequacy.”

He added: “While the volume of new PPO settlements has remained relatively low in recent years, the impact across the existing book of live PPOs is substantial. The heightened volatility in this index should be a red flag for actuaries and capital managers who may have anticipated a stabilizing trend.”

Bradley said insurers would need to reassess their reserving assumptions and capital models to ensure they reflected the increases and that they remained adequately provisioned.