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Course Notes - Chapter 2 - PPO

Z

Zenji

Member
Under other risk and disadvantages of PPOs, it says:
"Due to PPOs taking long to payout, the liabilities actually increases after they are granted and they build up".

Not sure if I am getting the full meaning of this statement, especially the part "after they are granted and they build up".

Thanks
 
I don't think it is the unwinding of the discount rate. The PPO is an annuity payments, and after 1 year, the liability should actually go down.
 
The Core Reading is trying to say that inflation is greater for PPOs than normal claims, and so you'd expect the payouts to increase dramatically over time, greater than any discount rate and hence liabilities would increase. Unwinding of the discount rate also plays a part - Avnish, you're right that a large part of a PPO is the annual payment (the other part being the initial payment), and yes, having paid one annual payment the total liability might go down, but getting closer to the later payments may more than offset this.

Hope this helps
Ian
 
Thanks guys. I think I was confused as I was thinking granted and build up as two changes and not a single change.
 
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