Motor Injury Insights - Finity Consulting...2016/09/23 · The 2015 rates and the % movement in the year are also shown. FIGURE 1 – CTP RATES AT JULY 2016: STANDARD MOTOR CAR 700

Motor Injury Insights brings you all the news

from the world of motor accident compensation.

September 2016

In this edition:

Updates on premiums and affordability across Australia and New Zealand

Analysis of the new APRA CTP data

Lifetime Care schemes commence in Qld and WA.

finity.com.au

Motor Injury

Insights

| Motor Injury Insights | September 2016 02

Update on Premiums

CTP Premiums around Australia and NZ

Figure 1 summarises the headline CTP premium rates effective 1 July 2016. It separately identifies the components

of the premium that relate to Lifetime Care (for those jurisdictions with separate schemes) and the amount relating

to stamp duty, GST and other levies. The 2015 rates and the % movement in the year are also shown.

FIGURE 1 – CTP RATES AT JULY 2016: STANDARD MOTOR CAR

700

600

500

400

300

200

100

0

* The Queensland NIIS commenced on 1 July 2016, but the NIIS levy will not be added to premiums until 1 October 2016. We have included it at 1 July 2016 for comparison purposes.

CTP Premium Lifetime Care Levy GST, Duties, Other Levies 1 July 2015

ACT

0%

NSW

11%

SA

2%

WA

35%

QLD*

13%

NT

0%

VIC

2%

TAS

0%

NZ (in NZ$)

(33%)

WA and Qld both introduced Lifetime Care schemes for those catastrophically injured in motor vehicle accidents from 1 July 2016.

For WA, the new scheme added $82 (or $99 including GST and duties) to premiums, accounting for the bulk of the 35% increase in the year. The ‘standard’ CTP component also increased by 2.5%.

In Queensland, the Lifetime Care levy of $69 was partially offset by a $30 reduction in the other component of premiums. Overall, the total premium increased by 13%.

In NSW, the total premium increased by 11%, predominantly driven by the higher frequency of legally represented minor injury claims.

The NZ premium fell by 33%, following a 41% reduction in the preceding year! The 15/16 levy for the ACC’s Motor Vehicle account included almost NZ$60 to fund the ‘residual portion’ (costs from accidents prior to 1999, before the scheme moved from pay-as-you-go to fully-funded). That component of the levy has been removed for 16/17, as funding of the residual portion was achieved in 2015, four years ahead of schedule.

Of the Australian jurisdictions, Tasmania now has the lowest premium. The ACT continues to have the highest premium.

Third party + lifetime care for catastrophic injuries No-fault

03| Motor Injury Insights | September 2016

Affordability Index

Figure 2 shows a CTP ‘affordability index’ by jurisdiction (yellow bar). The index expresses the standard metro car premium shown in Figure 1 as a percentage of average weekly earnings – a smaller percentage means better affordability. Since the jurisdictions have different benefit regimes, we can’t draw conclusions about comparative scheme performance from this index. The diamonds shows the affordability index at July 2015.

FIGURE 2 – CTP AFFORDABILITY INDEX AT JULY 2016

Since last year, affordability has improved marginally in the ACT and the NT – both largely driven by increases in average wages – and improved markedly in NZ following the 33% reduction in the Motor Account levy.

Affordability has deteriorated in WA and Qld, following the introduction of Lifetime Care schemes, and in NSW and SA. WA remains the most affordable of the Australian jurisdictions.

60%

55%

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

* The Queensland NIIS commenced on 1 July 2016, but the NIIS levy will not be added to premiums until 1 October 2016. We have included it at 1 July 2016 for comparison purposes.

July 2016 July 2015

ACT NSW SA WA QLD* NT VIC TAS NZ (in NZ$)

Cla

ss 1

Me

tro

Pre

miu

m a

s %

of

AW

E

Third party + lifetime care for catastrophic injuries No-fault


CTP Ultimate Cost Development

As part of its recent consultation regarding general insurance statistics, APRA released an example report for CTP showing how the proposed new statistics could be interpreted and used. The report, “Claims development in CTP motor vehicle insurance”, includes 2015 data from the privately underwritten CTP schemes (NSW, Qld and ACT).

One of the statistics included is the insurers’ own estimates of the ultimate cost of CTP claims. Figure 3 shows that for a given accident year, these estimates tend to reduce over time, by over 4% per annum.

The reductions in ultimate cost estimates have driven prior year reserve releases which have formed a significant component of insurers’ overall profits. For example, the contribution of CTP reserve releases (on an undiscounted basis) was $928 million in 2015. The driving factors have included the benign inflationary

environment. It is unclear to what extent this can continue. A continued benign inflationary environment would see further reductions but this might be expected to be offset to some extent by the frequency escalation observed in both NSW and Qld.

FIGURE 3 – DEVELOPMENT OF NET ULTIMATE CLAIMS COSTS BY ACCIDENT YEAR (CTP INSURANCE)

Ne

t U

nd

isc

Ult

ima

te C

ost

($

bill

ion

)

Development Year

3.0

2.5

2.0

1.5

1.0

0.5

0.0

1 11109876542 3

200520062007

2008

20092010

2011

2012

2013

2014

2015


Jurisdiction Roundup

NSW

Moving to a hybrid scheme

In June 2016, following industry consultation, the

NSW Government announced reforms to CTP,

moving to a hybrid no-fault scheme with defined

benefits for all injured people (including at-fault

drivers). Common law access would be retained

for the most seriously injured.

The Government identified the upward pressure on

CTP premiums, resulting from the dramatic increase

in low severity legally represented claims, as the main

impetus for these changes. The reforms are designed

to meet the following key objectives:

Increase the proportion of benefits paid to the

most seriously injured

TABLE 1 – NSW REFORM CONSIDERATIONS

Issues being considered Finity’s observations

A ‘fairness test’ for those with low severity injuries who require additional assistance beyond defined benefit entitlements.

Narrative tests and ‘second gateways’ to access common law or significant additional defined benefits are often eroded over time due to the subjectivity in the tests and the size of the benefits available. There is an inherent trade-off between ‘fairness’ to injured claimants and achieving lower CTP premiums.

Defined Benefit Caps

Proposed benefits provide for loss of earnings and medical expenses for up to five years, and commercial attendant care costs for up to two years2. These time limits would not apply to more seriously injured claimants3.

To be consistent with the objective to reduce claim duration, we believe the five year cap should be reduced and a cap should also apply to more seriously injured claimants.

There is a trade-off with premium affordability, due to the extra claims cost and higher profit margin required to support the additional capital required. As a major portion of these benefits are for at-fault drivers (who currently only receive a $5,000 ANF benefit), we do not believe this would be the most effective use of limited premiums.

Premium system and Risk Equalisation Mechanism (REM) to avoid price impacts on ‘higher risk’ vehicles.

The technical cost of motorcycles is expected to rise significantly due to the addition of benefits for the injured at-fault rider in single vehicle accidents. The frequency of claims is high, and the injuries tend to be more severe. The premium, therefore, would likely be unaffordable.

A REM could enable insurers to charge a significantly lower price to motorcycle owners, with the difference in cost being funded by contributions to the REM by other policies.

1 The government is predicting premiums will fall by 10-15% (www.abc.net.au/news/2016-06-29/overhaul-of-nsw-green-slip-scheme-to-see-premiums-drop-in-2017/7553854)

2 In some cases for longer than two years.3 Above 10% Whole Person Impairment (WPI) for medical and care and above 20% WPI for economic loss.

Reduce claim durations

Reduce the prevalence of fraudulent claims

Reduce CTP premiums1.

Along with changes to claimant benefits, the Government has flagged changes to premium setting and the development of a Risk Equalisation Mechanism to ensure affordable prices for all road users.

An expert reference panel, chaired by former NSW Minister John Della Bosca, is currently consulting with relevant stakeholders on the details of the reforms, and will make recommendations. The legislation is due to be tabled in Parliament before the end of the year.

Some of the issues being considered by the panel are summarised in Table 1.


De

cre

asi

ng

pri

ce

POLICIES INCEPTING 8 MAY 2016

Licence Premium

CIC-Allianz $644

Allianz $604

NRMA $588

QBE $587

AAMI $572

GIO $555

POLICIES INCEPTING 5 SEPTEMBER 2016

Licence Premium Change

CIC-Allianz $662 +$18

Allianz $628 +$24

NRMA $611 +$23

QBE $603 +$16

AAMI $592 +$19

GIO $578 +$22

Since May, all insurers have raised their premiums. The average premium rose by $21 or 4%. CIC Allianz remains the most expensive ‘best price’, while GIO remains the cheapest despite a $22 increase since May. The range of premiums has continued to narrow, from $89 to $84.

The Government has signalled that the new scheme benefits could take effect from 1 July 2017. Insurers may be required to reduce their premiums prior to that date in order to avoid overcharging motorists with some exposure to the new benefits. This means insurers will soon need to be in a position to estimate premiums and pay benefits under the new scheme.

Premiums continue to increase

Figure 4 shows the insurers’ premium rates for ‘model drivers’, ranked from most expensive to cheapest, at May 2016 and at September 2016.

FIGURE 4 – NSW CLASS 1 METRO PREMIUMS

Tackling fraud in CTP

NSW has established a multi-agency CTP Fraud taskforce. The taskforce will design government strategies to deter, detect and respond to CTP fraud, and will develop a campaign to increase awareness of fraud as a community issue. The Government announced an extra $1.2 million in the June budget to target CTP fraud. The funds will enable information sharing and enhanced data analytics to identify suspicious activity, and will assist in bringing fraudsters to justice.


Cooler Tort Temperature

Some recent judicial review decisions suggest that the higher courts of NSW are applying legal principles and interpreting legislation more strictly, which in effect restricts their jurisdictional reach. Table 2 provides very brief summaries of three such cases.

Coincidentally, these outcomes are consistent with the proposed reforms to move NSW CTP to a hybrid scheme – where the courts take a ‘back seat’ to CTP determinations, called upon only under defined circumstances.

TABLE 2 – RECENT NSW COURT CASES OF INTEREST

Case Issue Outcome

Spratt v Perilya Broken Hill Ltd & Spratt v Rowe [2016] NSWCA 192

Based on the legal principle of estoppel, should MAS Assessors be precluded from determining medical causation where it has already been determined by the Workers Compensation Commission?

The Court of Appeal found that the facts did not give rise to an issue of estoppel. MAS Assessors could contradict an earlier determination of the Workers Compensation Commission.

NRMA Insurance v Asaner [2016] NSWSC 1078

What are the grounds for judicial review applications?

The Supreme Court took the view that its powers to determine whether opinions are poorly formed according to the law are limited. Disputes concerning matters of fact are not sufficient grounds for judicial review.

Ross v Vaughan [2016] NSWCA 188

Fox v Percy [2003] HCA says that a Court of Appeal cannot reverse a finding of fact where the trial judge made a decision based on a witness’s ‘credit’.

The Court of Appeal took a narrow definition of the ‘credit’ issue from Fox v Percy; it only referred to findings of the witness’s demeanour and honesty. The Court was not precluded from reversing any findings of fact because the District Court’s finding of ‘credit’ was only in relation to how the witness’s evidence lined up with the rest of the case; there were no issues of dishonesty.


Queensland

All insurers have filed at the ceiling

The MAIC ceiling price applying up to 30 September 2016 is $330 and all insurers have adopted that rate.

For premiums from 1 October 2016, the MAIC ceiling has increased by $39 (12%) due to the introduction of the NIIS and all insurers have again filed at the ceiling.

The NIIS has started… but premiums won’t increase till 1 October

Queensland’s National Injury Insurance Scheme (NIISQ) came into effect on 1 July 2016. The scheme

TABLE 3 – REVIEW OF QUEENSLAND’S CTP SCHEME

Terms of reference Examples of issues raised

Explore the relative merits of private v public underwriting.

For private underwriting, are there any regulatory or systemic barriers that limit competition among insurers or discourage new entrants into the market?

Examine whether the premium system, distribution channels, insurer licensing and MAIC functions can be improved.

There is currently a lack of price competition and low switch rates between insurers, set against the backdrop of strong insurer profits.

Should more risk rating be introduced based on factors such as driver age, vehicle age, postcode or driving history (as in NSW)?

Why have insurers’ achieved profits exceeded filed profits so significantly?

Should CTP insurance be unbundled from vehicle registration, to ensure motorists understand they can choose their CTP insurer?

Examine whether scheme coverage should be improved.

Should victims of ‘inevitable accidents’ be covered (as in NSW)?

Should no-fault coverage be introduced for children (as in NSW)?

Explore measures to improve transparency around legal costs and administration charges to aid the monitoring of scheme efficiency.

Should lawyers be required to disclose a breakdown of their fees and the final settlement received by the claimant (as in NSW)?

Submissions to the review were due by 16 September, and the review committee is due to report back to the Government by 9 December 2016, in time for 2017/18 premium setting.

Can the Queensland Scheme be improved?

MAIC is reviewing the Queensland CTP scheme, looking to improve its affordability, efficiency and fairness, as well as ensuring it can support future innovation. The scheme was last reviewed in 2010.

The terms of reference for the review, and some of the issues raised in the discussion paper, are summarised in Table 3.

provides no-fault, lifetime coverage for necessary and reasonable treatment, care and support for those who have sustained a catastrophic personal injury from a motor vehicle accident. The scheme will operate as a hybrid model – incorporating no-fault benefits, while retaining an option for exercising common law rights where fault is involved.

Total CTP premiums (Class 1) will increase by $39 from 1 October. This increase is made up of a NIISQ levy of $69 per vehicle and a reduction in insurer premiums of $30 per policy. The drop in costs associated with the introduction of the NIIS is about $20, which means insurers are absorbing around $10 of unfunded liability per vehicle.

09| Motor Injury Insights | September 2016

ACT

NRMA has matched GIO’s premium

Figure 5 shows the recent history of premiums charged for Class 1 passenger vehicles in the ACT. Since our previous edition, NRMA has filed twice, increasing by $4 from 1 July but then decreasing by $19 to match GIO’s premium from 1 October.

FIGURE 5 – ACT PREMIUMS: PRIVATE USE PASSENGER VEHICLE

Pri

vate

Pa

sse

ng

er

Ve

hic

le P

rem

ium

($

)

600

595

590

585

580

575

570

565

560

555

550

545

540

Jul 1

4

May

15

Aug 14

Jun 15

Jun 16

Sep 14

Jul 1

5

Jul 1

6

Oct

14

Aug 15

Aug 16

Nov

14

Sep 15

Sep 16

Dec 14

Oct

15

Oct

16

Jan 15

Nov

15

Nov

16

Feb 15

Dec 15

Mar

15

Jan 16

Apr 15

Feb 16

Mar

16

Apr 16

May

16

NRMA

AAMI

APIA

GIO

Since privatisation in July 2013, the Suncorp brands have been building market share, and they accounted for almost a quarter of premiums collected in 14/15. Given that at least one of the Suncorp brands has been cheaper than NRMA for most of the period since June 2015 (Figure 5), we expect that Suncorp’s share will be higher for 15/16.

Suncorp brands continue to build market share

Figure 6 summarises the market share information recently published by ACT Treasury.

FIGURE 6 – MARKET SHARES IN ACT

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Prior 2013/14 2014/15

GIO APIA AAMI NRMA


South Australia

The privatised scheme commenced on 1 July, and four approved insurers are now providing CTP insurance in SA:

AAMI (Suncorp Group)

Allianz

QBE

SGIC (part of IAG).

Kim Birch (formerly of the NDIS and MAIC) has been appointed as CEO, Compulsory Third Party Insurance Regulator.

Western Australia

Lifetime Care scheme commenced on 1 July

People catastrophically injured in motor vehicle

accidents in WA now have their lifetime medical

and support costs covered by a no-fault insurance

scheme, the Catastrophic Injury Support (CIS) scheme.

An estimated 92 people are catastrophically injured

in motor accidents in WA each year. Previously, 48

could claim compensation under the CTP scheme

(those who could prove the fault of another party),

but the remaining 44 were left to rely on support

through Government services, personal insurance,

and/or family support.

As in the Qld scheme, catastrophically injured people who can prove the fault of another party retain the common law right to access lump sum compensation. In other jurisdictions, the commutation of care and support entitlements is not allowed – in line with NIIS minimum benchmarks.

The Insurance Commission of WA will manage the new CIS scheme alongside the existing CTP scheme – together they are termed Motor Injury Insurance. The Commission has already collaborated with the health and disability sector to simplify the new scheme’s registration processes and to reduce red tape for service providers.

The CTP Insurance Regulator has been established; it is an independent body responsible for the oversight of the approved insurers. It has recently published a series of rules for insurers, covering aspects including:

Market practice (e.g. acting in good faith, transparent processes)

Information and privacy

Claims management

Disputed claims.

The complete set of rules can be found on the regulator’s website (www.ctp.sa.gov.au/rules.html).


Kane Boulton

+ 61 2 8252 3348

[email protected]

Sydney Office

Sue Freeman

+ 61 2 8252 3431

[email protected]

Sydney Office

Raj Kanhai

+ 61 2 8252 3332

[email protected]

Sydney Office

Contact the authors

Finity introduces Sue Freeman

We are very excited to announce that Sue Freeman will be joining Finity’s management consulting practice in early October.

Sue has a background in health (psychology) and disability, and has worked at the NSW State Insurance Regulatory Authority (SIRA, formerly the MAA) since the inception of the current scheme in 1999. Most recently, Sue was the Director, Policy Performance and Community Assistance at SIRA; she has also headed the Medical Assessment Service and has performed a number of leading roles in injury management and scheme enhancement initiatives.

With Sue as part of our team, Finity’s service offering is enhanced, particularly in the areas of:

Claims management

Injury rehabilitation

Scheme policy design and implementation

Government and regulatory issues.

Please contact Sue directly, or your regular Finity consultant, to find out how she might be able to help you.

Like to know more?

Please contact one of

our motor injury experts

if you have any questions

or comments about this

d’finitive, or to learn

more about Finity’s

motor injury offering.

Alternatively, read more

at finity.com.au.

AUSTRALIA

Sydney

Level 7, 68 Harrington StreetThe Rocks NSW 2000+61 2 8252 3300

Melbourne

Level 3, 30 Collins StreetMelbourne VIC 3000+61 3 8080 0900

Canberra

Level 1, 29 Jardine Street Kingston ACT 2604+61 455 850 949

Adelaide

Level 30, Westpac House 91 King William Street Adelaide SA 5000+61 8 8233 5817

NEW ZEALAND

Auckland

Level 5, 79 Queen Street Auckland 1010+64 9 306 7700

Finity’s Motor Injury Team

Finity’s motor injury team prides itself on looking beyond the pure analytics to gain a deeper understanding of the cost drivers for schemes. This means we can respond appropriately in valuations, premium setting and scheme design.

In addition to our actuaries, Finity has a dedicated group of claims and operational insurance experts in our management consulting practice, who can assist with claims and expense management.

If you would like to receive future editions of Motor Injury Insights, please contact Renae Hoskins on +61 2 8252 3350 or at [email protected].

This article does not constitute either actuarial or investment advice. While Finity has taken reasonable care in compiling the information presented, Finity does not warrant that the information is correct.

Copyright © 2016 Finity Consulting Pty Limited.

2015 ANZIIF Professional Services Firm of the Year

Six times winner Service Provider of the Year, Insurance Industry Awards

Hall of Fame Australian Insurance Industry Awards

Finity Consulting Pty Ltd ABN 89111470270 | finity.com.au

Documents

Motor Injury Insights - Finity Consulting...2016/09/23 · The 2015 rates and the % movement in the year are also shown. FIGURE 1 – CTP RATES AT JULY 2016: STANDARD MOTOR CAR 700