The Government Actuary's Department (GAD) has formed a successful and embedded relationship with NHS Resolution.
NHS Resolution is an arm's length body of the Department of Health and Social Care. A large a part of the work at NHS Resolution is handling negligence claims on behalf of the members of their indemnity schemes: NHS organisations and independent sector providers.
The majority of claims are funded by contributions from members, with some claims funded centrally by the Department of Health and Social Care (DHSC).
GAD works with NHS Resolution in detailed and strategic ways to support a number of different workstreams, including reserving (forecasting the ultimate cost of claims), cashflow projection, budget setting, and pricing of member level contributions.
GAD's collaborative relationship
GAD's role is to make use of historical data, taking into account both external and internal factors, with input from experts across NHS Resolution, to develop and update the corresponding models with suitable assumptions.
GAD presents its proposals to NHS Resolution's Reserving and Pricing Committee which has overall ownership of decisions in respect of these areas and any assumptions underlying those decisions.
GAD and NHS Resolution continue to build on the relationship with the embedding of the actuarial advisers to enhance the quality of service and insight delivered.
Reserving
NHS Resolution reports its liabilities within their annual accounts. GAD's expertise helps the organisation ensure the provisions adequately reflect all potential claims incurred before the accounting date.
We undertake an annual review of all provisioning assumptions, with a particular focus on quantifying areas of uncertainty. This review includes, but is not limited to assumptions in respect of:
- the projected number of claims for each incident year
- the average cost at settlement
- claims inflation
- the expected time that elapses between incident, reporting and settlement of a claim
- the probability of a claim being successful
- the timing of future claims
The personal injury discount rate also affects the size of some claim payments, and therefore affects how much provision to set aside. However, this assumption is prescribed by the Lord Chancellor and will be reviewed again during 2024.
Cashflow projection and pricing
GAD uses modelling to project cashflows over many years, with a particular focus on short term budgetary forecasts.
Due to the pay-as-you-go nature of funding, this projection is used to set a total collect from NHS Resolution's members for the next financial year. This is then distributed between members based on their risk and previous claims experience.
This pricing calculation considers the riskiness of different types of NHS activity, also takes into account the historical claims experience of members, both of which impact members contributions.
Embedded support
GAD and NHS Resolution continue to strengthen the relationship, with GAD developing a deeper understanding of NHS Resolution's business and data, NHS Resolution encouraging us to challenge where we think it could improve and thereby enabling us to deliver better results and more insight (such as, for example, in relation to data capture and quality).
With this in mind, GAD is also working with NHS Resolution on designing and implementing a new operational IT system and supporting NHS Resolution manage risk from changes in the health and legal market by developing innovative and robust approaches to quantifying the impacts on the provision.
GAD also provides additional embedded support through the provision of a secondee, who works solely within and for NHS Resolution's finance team. This arrangement has helped to identify specific areas where we can add further value.
Michaela Talbot's NHS Resolution's Head of Finance (Indemnity Schemes) remarks on the close relationship between both organisations and the importance of GAD as a strategic partner. "We have worked with GAD for a number of years. With the development of embedding our collaboration has increased further. GAD work in an integrated and yet independent way with us and is a true strategic partner to NHS Resolution."
This is echoed by GAD actuary Andy Jinks, who leads GAD's oversight on this client: "As one of GAD's most important clients, we have established a strong working relationship with NHS Resolution over a number of years. We continue to develop this as GAD's contribution to the organisation increases further."
