01 JULY 2012 | DR WILSON CARSWELL

Even to the well informed actuary, there is no obvious connection between Lawrence of Arabia and periodic payment orders (PPOs). But there is a link, in my opinion, although an obscure one. It is helmets.

In 1935, TE Lawrence was riding a motorbike when he apparently swerved to avoid other road users and was thrown off. He suffered a serious brain injury and, although provided with the best available medical care, died in hospital just six days later. During his fatal illness, the attending doctor was a Hugh Cairns, who later became a prominent neurosurgeon.

Cairns was struck by the fact that Lawrence’s death was eminently preventable. He subsequently started a campaign advocating the use of protective helmets, initially for military dispatch riders and later also for civilian motorcyclists. This initiative led to a noticeable drop in fatal head injuries in both groups. The campaign resulted, a mere 38 years later, in legislation requiring all motorcyclists to wear helmets. Data collected since then confirms the benefits of this measure.

The value of helmets as a protection against head injury has been known for centuries. The earliest records of their use go back to the helmeted ‘Sea Peoples’, who invaded Pharonic Egypt more than three millennia ago in the time of Rameses III. Since then, soldiers have worn helmets as a matter of course and contact sportsmen readily adopted them. More recently, their use has spread, often by social diffusion and without the force of law. Helmets are now used on a daily basis by a range of groups ranging from toddlers on tricycles to boys on bikes, skiers on slopes and Formula One drivers in Delhi. The presumption is that helmet-wearing is safer for the user, as it substantially reduces the risk of serious brain damage in the event of an accident.

A glaring exception to the groups of vulnerable individuals potentially exposed to serious brain injury, who use helmets as a matter of course, is the everyday motorist. If the average motorist were asked “Why don’t you use a helmet when you drive a car?” their answers might range from “It would look silly” or “I’m only going to the supermarket” to “I’m not a dangerous driver”. The chances of having a serious head injury when driving to the shops are slight. However, the cumulative risk to motorists is present and quantifiable. Should injury occur, it can have disastrous long-term consequences.

The damage to a brain depends on the energy transmitted to it at impact. This kinetic energy is calculated by the formula: half the mass multiplied by the velocity squared. In any head injury, whether due to a bicycle accident or a racing car collision, the mass of the affected head is unchanged. The difference in energy available to cause brain damage thus depends only on the square of the speed (velocity) at impact. If a head injury occurs while travelling, a motorist trundling along at 30 miles per hour will receive more than twice the destructive energy of a cyclist racing along at 20mph (302 = 900 while 202 = 400, giving a ratio of 9:4).

Connections broken

In the event of an accident, the brains of a car’s occupants are often liable to greater damage than those of cyclists. The energy transmitted to the brain tissues at the time of the impact can have a permanent destructive impact on future brain function. Delicate microscopic neural connections are torn or moved apart, never to return to their pre-accident condition. Subsequent medical or surgical intervention, however skilled or timely, cannot always remedy this damage.

Preventive medicine is intrinsically less exciting than acute medicine or surgery. Whole bodies of doctors, supported by learned societies and journals, describe the minutiae of medical responses to trauma, but there is much less interest in preventing serious head injuries. This focus on the management of established trauma is not limited to medicine. A whole sub-industry of accounting and legal services is devoted to providing and computing the permanent care of a seriously brain-injured young person.

As for PPOs, these have a much more recent genesis than helmets, coming into being only with the Courts Act 2003. They grew out of the climate of low interest rates and, although still few, could grow massively in the next decade or so. They are designed to benefit severely disabled claimants who need long-term care. In future, a significant proportion of these benefits will probably be awarded to the severely brain‑injured.

PPOs have nothing to do with helmets directly, being designed to help an injured claimant receive guaranteed lifelong compensation for his or her serious injuries. By using PPOs, the cost of these total risks – whether they are of the claimant’s longevity, the risks of investment returns or the risks of future inflation – have been effectively transferred from the claimant to the insurer and, in many cases, to the reinsurer. A recent award decreed that it would cost £350,000 a year to care for a seriously injured young person, and this level of award may soon become commonplace.

PPOs thus have unknown and unquantifiable costs – an uncomfortable concept for any actuary. Several clever financial responses to these financial challenges have been suggested, including the use of derivatives. But these are, at best, only a partial answer to the possibly devastating consequences of a wave of PPOs eroding reinsurers in years to come.

While finance has only limited answers to future PPO costs, can preventive measures be of any use? Timely investigations (scans and MRIs) and treatment (invasive brain surgery) can reduce to some extent the consequences of a severe brain injury. But they cannot reverse the neurological damage created at impact.

One way to anticipate, and thus prevent, some of these brain-damaging events might be to require all car occupants to routinely wear helmets. This idea might seem ridiculous – just as the idea that motor-cyclists should wear helmets was thought to be in the 1930s, or that car users should be legally obliged to wear seat-belts was in the 1950s.

Organisations such as Headway and Reach can testify to the devastating consequences of severe (preventable) brain damage on the clients on their books. The costs of destructive personal, familial and social damage far outweigh, and can’t adequately be compensated by, the heavy financial costs subsequently borne by insurers.

Estimating the current costs of severe head injuries to insurers is not easy. Detailed pathological data on non-fatal head injuries is scattered and not readily accessible. The data for fatal head injuries in road traffic accidents (RTA) that might allow actuaries to make an informed estimate of the extent of non-fatal head injuries is likewise inaccessible.

It is also unclear what proportion of current PPOs are associated principally with serious brain damage. However, even if it were found to be ‘only 10%’, it would still be worthwhile trying to prevent that proportion – for financial if for no other reasons.

Seat-belt signal

The high, and possibly unsustainable, costs of PPOs may encourage reinsurers to push for any useful intervention to reduce the future costs of PPOs. In time, insurers and reinsurers may advocate the routine use of helmets in cars. A straw in the wind is Section E of the Claims Notification Form (CNF2) in the RTA portal for claims between £1,000 and £10,000. The question is asked “Was the claimant wearing a seat-belt?” The suggestion is that a negative response implies some personal liability. Perhaps, in 38 years’ time, similar forms will ask “Was the claimant wearing a helmet?”

The old advertising slogan “Get ahead, get a hat” associated hat-wearing with social advancement. A modern slogan might read “Stay ahead, get a helmet”. Will we one day see our macho motoring icons pictured wearing helmets while driving ordinary cars in non-racing situations?

Actuaries, with their ability to analyse data, could encourage reinsurers to bring this change about. There is nothing like a financial imperative for reinforcing change.