I'll give you one reason Peter. Roughly at the same time that pensions were switched over from equities to gilts, the courts took the view that in calculating the necessary funds to award to generate a future income for a claimant in serious cases, they would no longer use equity based products but would base on notionally less risky government loan stock. So instead of calculating based on the historic long term return of equities at 7% they based on gilts at 3%. Overnight the size of sums awarded doubled.
Now of course thanks to the B of E keeping government interest rates down, awards have had to go up further. The latest interest reduction will force awards up further still next year. Particularly since we now have both very low interest rates and rising inflation
Its exactly the same calculation that has doubled salary related pension deficits in the last year. Pension schemes need to have twice as much money in them because interest rates have halved and when the actuaries do the DCF calculations based on latest returns the necessary size of fund has shot up..
Compo in the millions, even more than that, isnt uncommon in severe cases.If you assume that the average net premium that the insurance company sees before its own costs is £500 then it takes something in the region of 20,000 policies to pay one major claim of £5 million. Then there are the costs of the insurance company and all the smaller claims to pay too.
