CTP News. [ accident compensation ] In this edition, we:

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1 d finitive [ accident compensation ] Keeping you informed. MARCH 2014 CTP News Interaction between private insurers and LTCS is being tested in NSW. NRMA has withdrawn from Queensland. Legislation has been passed in Victoria and proposed in the ACT. In New Zealand, risk rating based on vehicle safety is being considered. With so much happening, this d finitive provides a comprehensive overview of the latest news. In this edition, we: >> Review the financial performance of CTP schemes in Australia and New Zealand for 2012/13 it s been a good year! inity s CTP claims capability has been boosted by Raj Kanhai joining our Management Consulting team see page 12. >> Compare the trends in claim frequency over the last five years frequency was down in 2012/13 for most schemes. >> Report on recent developments in other jurisdictions. We also provide more information on the interactions between the NDIS and CTP schemes. Sydney Auckland Melbourne Wellington

2 Scheme Performance in 2012/13 igure 1 shows a four-year history of funding ratios for the government monopoly schemes in Australia and NZ. IGURE 1 UNDING RATIOS 1 O MONOPOLY CTP SCHEMES unding ratio (%) TAC (Vic) MAIB (Tas) TIO MAC (NT) MAC (SA) TPI (WA) LTCS (NSW) ACC MV (NZ) Jun 10 Jun 11 Jun 12 Jun 13 After declines for most schemes in the year to June 2012, the funding positions for all schemes improved in the year to June All schemes except the TAC are now in a better funding position than they were at June While the funding ratios for the TAC and the ACC Motor Vehicle Account have improved over the last year, total assets remain lower than total liabilities for these two schemes. All other schemes have funding ratios above 120%. Table 1 summarises some of the other key performance metrics for 2012/13. 1 Total assets divided by total liabilities. There are some definitional differences from the funding ratios quoted by the schemes. 2 d finitive MARCH 2014

3 TABLE 1 KEY METRICS OR 2012/13 2 TAC (Vic) MAIB (Tas) TIO MAC (NT) MAC (SA) TPI (WA) LTCS (NSW) ACC MV (NZ) Change in gross OSC liabilities Investment return (previous year) -1% +1% -8% +1% -3% +16% 3-5% 15.5% 15.5% 9.2% 10.2% 14.5% 13.3% 9.9% 4.2% 2.2% 10.4% 5.6% 2.5% 6.7% 9.5% Net profit (before tax) $1.4b $208m $82m $371m $439m $377m $NZ1.6b 4 Comments on claims experience Poor experience in relation to common law, treatment and income benefits. Offset by changes in inflation assumptions and risk margins. Claim costs significantly below budget, largely due to favourable revaluations of claims reserves and economic assumptions. Operating surplus has continued to improve. Scheme performance stable and within actuarial expectations. Number of claims continued to fall. acing significant increases in the costs of medical treatment, rehabilitation and care services. Liabilities lower than budget due to lower provision for participant care and support services. The key themes emerging from this experience are: >> Changes in outstanding claim liabilities were small for most schemes; the large increase for the LTCS is due to the scheme maturing. All schemes noted the positive impact of increases in bond yields on their liabilities. >> All schemes except TIO benefited from much stronger investment performance in the year, with returns of around 10% or more. The TIO s return in 2011/12 was much higher than the other schemes. >> All schemes returned a profit in the year. We note the ACC Motor Vehicle Account collected a specific levy of around $300 million to return the scheme to full funding and also benefitted from significant claims-related reductions in the outstanding claims liabilities. 2 or some items the amount shown will differ from figures shown in the schemes annual reports as we have attempted to adjust for differences in reporting. 3 Expected to increase each year as LTCS participant numbers increase. 4 A component of ACC levies relates to funding pre-1999 accidents (move from PAYG to fully-funded). MARCH 2014 d finitive 3

4 Claim requency Trends igure 2 shows the past five years CTP claim frequencies for Australian states and New Zealand. Each jurisdiction s frequency is expressed as an index relative to 2008/09. IGURE 2 CTP CLAIM REQUENCY TRENDS requency Index NSW Vic Qld SA WA Tas NZ NSW: Ultimate accident year frequency, claims + ANs (excluding at fault ANs) VIC: Ultimate accident year frequency, no fault claims QLD: Ultimate accident year frequency, all claims SA, WA, TAS: Number lodged in year, all claims NZ: Entitlement claims in the Motor Vehicle Account 08/09 09/10 10/11 11/12 12/13 Claim frequencies for all jurisdictions except NSW have fallen over the four years since 2008/09. SA, WA and Tasmania have had the largest reductions, with the 2012/13 frequency 20-25% lower than 2008/09. or NSW, the 2012/13 frequency is 12% higher than 2008/09. This includes a 20-25% increase in the frequency of claims where the claimant has engaged legal representation. Concentrating on movements in the last year: >> Claim frequencies declined or were stable for all jurisdictions other than Queensland and Tasmania. >> or Queensland, we examined the quarterly claim frequencies and saw that the 2011/12 year includes two particularly low quarters. If we ignore these two quarters, the claim frequency has been stable over the last three years. >> Tasmania s frequency was very low in 2011/12, and the increase for 2012/13 may be due to random variation (small jurisdiction). 4 d finitive MARCH 2014

5 Affordability Index igure 3 shows a CTP affordability index for the Australian and NZ jurisdictions at July 2013 (yellow bar). The index expresses the Class 1 CTP premium at 1 July 2013 as a percentage of the jurisdiction s average weekly earnings; note that a smaller percentage means better affordability. We have also shown the affordability index at 1 July 2012 for comparison (diamond). Note that since the jurisdictions have different benefit regimes, we can t draw any conclusions about comparative scheme performance from this index. IGURE 3 CTP AORDABILITY INDEX AT JULY 2013 Class 1 Metro Premium as % of AWE 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% Expected impact of the Lifetime Support Scheme 5% 0% NSW VIC QLD SA WA TAS NT ACT NZ Jul 13 Jul 12 or SA, we have shown the expected net impact of the Lifetime Support Scheme which will commence on 1 July 2014 a six point worsening in affordability to 48%. The Lifetime Support Scheme will be funded by a separate levy (expected to be $105), and the CTP premium will reduce as some CTP costs move to the Scheme (expected reduction of $45). The 48% does however represent an improvement on the 52% affordability index prior to the CTP reforms introduced on 1 July Affordability also improved in NSW, moving three points since July or other jurisdictions, the affordability index was largely unchanged over the year. WA remained the most affordable by a reasonable margin. MARCH 2014 d finitive 5

6 NSW Developments Applying the International ramework for Tribunal Excellence This framework, developed by the Council of Australasian Tribunals, assists tribunals to deliver quality services. It assesses a tribunal s performance in eight areas (including Independence, Accessibility, Accountability, and Efficiency), and provides guidance for improved performance. The NSW Motor Accidents Assessment Service (MAAS) operates two dispute resolution services: >> Medical Assessment Service (MAS) >> Claims Assessment and Resolution Service (CARS). The MAA has started applying the new framework to both MAS and CARS to benchmark their performance and to identify initiatives for improvement. Some increases in premiums Table 2 shows the premium rates for a model driver at March 2014 compared to August TABLE 2 SELECTED NSW CLASS 1 METRO PREMIUM RATES 1 Insurer Aug 13 Mar 14 Change % Change AAMI $532 $532 Allianz $534 $549 $15 3% CIC-Allianz $524 $524 GIO $519 $519 NRMA $532 $532 QBE $492 $517 $25 5% Zurich $543 $547 $4 1% Average $524 $530 $6 1% 1 or a model driver : 39yr old with a new car, comprehensive insurance with full NCD, no demerit points and no at-fault accidents for 2 years. Three insurers have increased rates since August 2013: QBE by $25, Allianz by $15, and Zurich by $4. The increase in Allianz s premium makes it the highest, while QBE remains the lowest. 6 d finitive MARCH 2014

7 Cases of interest There have been two recent decisions that warrant a mention. Thiering v Daly This case considered the entitlement of a LTCS participant to claim for gratuitous services (GvK damages). A potted summary: Date Event 11 November 2011 The Court ruled that where a claimant entitled to compensation under the NSW MACA Act is also a participant in the LTCS Scheme, the CTP insurer is liable for past gratuitous care, but not future gratuitous care. 25 June 2012 A bill relating to treatment and care needs removed compensation for gratuitous care by either the LTCSA or the CTP insurer for LTCS claims lodged after 29 May Insurers would remain liable for past GvK damages on all LTCS claims lodged between the start of the LTCS Scheme and 29 May ebruary 2013 The NSW Court of Appeal upheld the original decision, allowing damages for past gratuitous care to be claimed from the CTP insurer. 6 November 2013 The High Court of Australia overturned the original decision, finding that Mr Thiering had no entitlement to claim gratuitous care services from Mr Daly or his CTP insurer. After the High Court s decision, it is now clear that LTCS participants are not entitled to any compensation in respect of gratuitous services from either the CTP insurer or the LTCSA. Smalley v Allianz The Court of Appeal decision in this case (November 2013) found that claims with procedural defects (for example, late reported claims) and claims where liability is not determined within three months would be exempt from CARS and be allowed to proceed within the court system. The decision is at odds with current practice around liability determination. This decision has ramifications for insurers issuing Section 81 notices (relating to admission/denial of liability), and could lead to a significant increase in the number of claims being automatically exempt from assessment at CARS. This could result in an increased litigation rate and subsequent pressure on claims costs. We understand that the MAA has responded quickly, with proposed changes to the Claims Handling and Claims Assessment Guidelines so that matters will not be automatically exempt from CARS. The MAA has proposed an additional hurdle that matters be assessed for complexity before being allowed to proceed to court. Subject to stakeholder confirmation, it appears that the Guideline changes will come into effect very soon. Accordingly, any potential impact on claims costs of the Smalley decision will likely be negated. Hot? Cold? How is your tort temperature? At inity we use the term tort temperature to describe the influence of the current social and judicial environments on the cost of claims. A hot temperature means the environment is tending to increase claim costs. We have been thinking about tort temperature in the context of CTP schemes, and have developed a scorecard approach to draw all relevant information together in a cohesive way. The scorecard can be useful in assessing the current (and prospective) tort temperature, and to inform planning for a scheme or insurer risk appetite, claims management priorities, pricing (including superimposed inflation assumption) and underwriting. or more detail on how our tort temperature framework could help you, please contact Geoff Atkins on or geoff.atkins@finity.com.au. MARCH 2014 d finitive 7

8 Queensland Developments NRMA pulls out rom 1 January 2014, NRMA voluntarily ceased to underwrite CTP insurance in Queensland. NRMA will continue to manage outstanding claims and cover any new claims arising from policies that commenced before 1 January NRMA policyholders whose policies expire over the course of 2014 will need to nominate a new insurer. Those who do not will be randomly allocated a different insurer by the Department of Transport and Main Roads. Some price competition returns! rom 1 April 2014, Allianz will write Queensland CTP business at $2 below the MAIC ceiling (maintaining its current price of $335), while QBE, RACQI and Suncorp will all continue at the ceiling price. This is the first time in two years that any insurer has filed a Class 1 rate below the ceiling. Table 3 shows the ceiling prices for Class 1 vehicles over the last two years. TABLE 3 QUEENSLAND CTP CEILING PRICES CLASS 1 Quarter Beginning MAIC Ceiling Price Change 1 Jul 12 $319 1 Oct 12 $324 $5 1 Jan 13 $329 $5 1 Apr 13 $332 $3 1 Jul 13 $328 ($4) 1 Oct 13 $335 $7 One Suncorp brand in Queensland On 1 July 2013, Suncorp consolidated its four Australian licensed insurers into one AAI Limited and MAIC approved AAI as a licensed CTP insurer. AAI underwrites all of its Queensland CTP policies under the Suncorp brand. AAMI s CTP policyholders were transferred to AAI and, on expiry, were invited to renew with AAI under the Suncorp brand. 1 Jan 14 $335 1 Apr 14 $337 $2 The MAIC ceiling price will increase by $2 on 1 April With the rationalisation of Suncorp s brands and the withdrawal of IAG from the market (see stories on left), only four insurers remain in the Queensland market. 8 d finitive MARCH 2014

9 Victoria TAC legislation tightened In November 2013, the Victorian Parliament passed 26 amendments to the Transport Accident Act The main amendments are summarised below. Element Psychological claims definition of serious injury Changes To make a claim at common law, a claimant needs to either exceed 30% whole person impairment or be deemed to have a serious injury (the narrative test ). or claimants with a psychological injury, the Act has been amended to include a clinical framework for determining serious injury: >> The claimant must have had a severe long-term mental or behavioural disturbance for at least three years >> It must be a recognised metal illness that has not responded to known effective clinical treatments provided by a registered mental health professional >> The claimant must have severely impaired function, with clinically significant distress and severe impairment in relationships and social and vocational functioning. These changes are expected to reduce the number of claimants who are deemed to have suffered a serious psychological injury. Reimbursement for medical reports Prior to the amendments, claimants were able to seek medico-legal reports without the approval of the TAC, and the TAC was obliged to pay for those reports. The TAC will now be required to reimburse costs only for medico-legal reports that are: >> Jointly requested by the TAC and the injured person >> Jointly provided to the TAC and the injured person >> Provided by a registered health practitioner. These changes are expected to reduce the number of claimants seeking medical reports and multiple medical reports. Other benefit increases The amendments increased some benefits including travel, accommodation, counselling and funeral benefits. MARCH 2014 d finitive 9

10 People on the Move Len Boehm, formerly of WorkSafe Victoria, has accepted a new role as Executive General Manager, CTP at the South Australian Motor Accident Commission (MAC). ACT proposes Lifetime Care and Support Scheme The Lifetime Care and Support Scheme (Catastrophic Injuries) Bill 2013 was introduced to the ACT Legislative Assembly in late ebruary and is part of the ACT s implementation of the National Injury Insurance Scheme. Key features of the proposed scheme include: >> The cost will be met by a levy on CTP insurance premiums. The levy is expected to be $34, starting from May or June >> Claims will be managed by the NSW Lifetime Care and Support (LTCS) Scheme (presumably for a fee), with the ACT buying into the NSW scheme. There will be no cross-subsidisation between NSW and the ACT. >> The new scheme will operate on a no-fault basis for five categories of catastrophic injury: spinal cord injury, acquired brain injury, multiple amputations, burns and blindness. >> There must be at least one registered vehicle involved in the accident. Some accidents, including those involving an unregistered vehicle on private property, will not be covered. The ACT Government estimates that between three and six catastrophically injured people will access the scheme each year, at an average lifetime cost of $2.3 million. NZ: ACC MV Account considering risk ratings The 2014/15 levy consultation for the Motor Vehicle Account included a proposal to introduce risk ratings for passenger vehicles. The proposed ratings are based on research by Monash University measuring secondary safety of passenger vehicle makes and models. (In this context, primary safety systems such as anti-lock brakes allow a vehicle to avoid a crash, and secondary safety systems like airbags reduce the extent to which kinetic energy in a crash is transferred to the driver, passengers and other people). Cabinet has approved the proposal in principle with introduction expected by 1 July Estimates from the Office of the Minister for the ACC suggest that the proposal would move NZ$33 million of levy between safer and less safe vehicles. 10 d finitive MARCH 2014

11 Interactions between NDIS and existing schemes The NDIS Act and Rules have complex provisions relating to recovery from other insurances or schemes, as reported in previous d finitives DisabilityCare Australia It s here! August The NDIS can t generally seek recoveries directly from CTP or workers compensation schemes The NDIS is intended to cover the reasonable and necessary care and support for eligible participants. This includes attendant care, physiotherapy, aids and appliances, and home modifications. Many of these are already provided to claimants in compensation schemes (by either periodic payment or lump sum compensation). The NDIS cannot generally seek a recovery directly from a CTP or workers compensation scheme. However under Section 105 of the Act, it can compel a participant to initiate an action to receive compensation (i.e. to lodge a claim). If the participant doesn t lodge a claim, the NDIS may choose to suspend payments. Where NDIS participants have received lump sum compensation, or are receiving regular support from a scheme, these payments will offset (in part) the amount set aside for them in the NDIS. The Rules specify how the NDIS CEO will determine the compensation reduction amount in the following circumstances: >> Where a judgement or settlement specifies the components of the settlement subtract the care and support component >> Where a judgement or settlement is made all in rules have been developed to apply an element of rough justice >> If the participant is receiving regular payments from a scheme the CEO will rely on an actuarial model to calculate the reduction >> If the participant hasn t pursued litigation but the CEO thinks s/he should have the CEO will form a view about what the participant would have received. These rules attempt to ensure that there is no double dipping by NDIS participants: if participants have received compensation payments from a CTP scheme, the NDIS will deem part of this to be care and support and offset it against their NDIS package. The rules are different where there is no compensation scheme in place for example, public liability and medical malpractice claims. or these claims, the NDIS can in some circumstances take over the claim on behalf of a participant. It will be fascinating to see how these arrangements play out in practice! MARCH 2014 d finitive 11

12 inity introduces Raj Kanhai We are very excited to announce that Raj Kanhai has recently joined inity s management consulting practice. Raj is a lawyer and claims expert whose recent roles have included: >> Long Tail Claims Manager with QBE Raj had accountability for both strategic and operational performance for the long tail claims classes including CTP, public liability and professional indemnity claims. He was responsible for management of 8,500 claims with liabilities of around $1 billion. Sources >> igure 1 and Table 1: 30 June 2013 Annual Reports of TAC, MAIB, TIO, MAC, ICWA, LTCSA, ACC igure 2: > NSW: inity analysis of MAA data > VIC: TAC 31 Dec 2013 OSC valuation > QLD: inity analysis of MAIC data > SA: MAC 30 June 2013 Annual Report > WA: ICWA 30 June 2013 Annual Report > TAS: MAIB 30 June 2013 Annual Report > NZ: ACC 30 June 2013 Annual Report igure 3: > NSW: prices.maa.nsw.gov.au > VIC: >> National Manager for Retail claims at TAL, one of Australia s largest life and income protection insurers Raj was responsible for financial, staffing, customer and business, strategic and operational management of a team of 50 claims and injury personnel. With Raj as part of our team, inity s service offering is enhanced, particularly in the areas of: >> Claims and injury management >> Litigation and provider management >> Alternative dispute resolution >> Process improvement and change management >> Stakeholder management and customer service. Please contact Raj directly, or your regular inity consultant, to find out how he might be able to help you manage claims better. Tel: raj.kanhai@finity.com.au Sydney Office > QLD: > SA: > WA: > TAS: > NT: > ACT: > NZ: > AWE: ABS statistics, All Persons, Total Earnings, Original series >> Table 2: >> Table 3: 12 d finitive MARCH 2014

13 d finitive [ accident compensation ] At inity, we love to receive feedback. If you have any comments on this edition, or suggestions for future editions, let us know! inity s CTP Team inity s CTP 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, inity has a dedicated group of claims and operational insurance experts in our management consulting practice, who can assist with claims and expense management. Contacts Aaron Cutter aaron.cutter@finity.com.au Estelle Pearson estelle.pearson@finity.com.au Gillian Harrex gillian.harrex@finity.com.au Graeme Adams graeme.adams@finity.com.au If you would like to be added to the mailing list for future editions of CTP News, please contact Renae Hoskins on or at renae.hoskins@finity.com.au This article does not constitute either actuarial or investment advice. While inity has taken reasonable care in compiling the information presented, inity does not warrant that the information is correct. Copyright 2014 inity Consulting Pty Limited. Australia & New Zealand Insurance Industry Award Service Provider of the Year 2006, 2007, 2008, 2009 and Australian Insurance Industry Awards - Inaugural Inductee into the Hall of ame Australia Sydney Tel Level 7, 155 George St The Rocks, NSW 2000 Melbourne Tel Level 3, 30 Collins Street Melbourne, VIC 3000 New Zealand Auckland Tel Level 27, 188 Quay St Auckland 1010 Wellington Tel Level 16, 157 Lambton Quay Wellington 6140 inity Consulting Pty Limited ABN Contact the Authors Karen Cutter Tel karen.cutter@finity.com.au Sydney Office Kane Boulton Tel kane.boulton@finity.com.au Sydney Office