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

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1 d finitive [ accident compensation ] Keeping you informed. AUGUST 214 CTP News It s been a busy six months, with NIIS-compliant benefits commencing in three more jurisdictions from 1 July, big levy reductions planned in NZ, and SA announcing plans to open up the CTP market to private insurers. In this edition, we: >> Update you on premium rates and affordability around the nation (and NZ) >> Highlight a number of recent NSW cases that have Tort Temperature implications Please contact one of our CTP experts if you have any questions or comments regarding this d finitive or to learn more about inity s CTP offering. Alternatively, read more at finity.com.au. >> Report on recent developments across the CTP jurisdictions. Sydney Auckland Melbourne

2 Premiums Update CTP Premium Rates around Australia and NZ igure 1 summarises headline CTP premium rates effective 1 July 214. It separately identifies the component of the premium that relates to Lifetime Care, where the information is publicly available. The 213 rates and the percentage change in the year are also shown. Coverage Summary No fault Third party Third party + lifetime care for all catastrophic injuries VIC, TAS, NT, NZ QLD, WA NSW, SA, ACT IGURE 1 CTP RATES AT JULY 214: STANDARD METRO CAR 1 1% 3% 3% 17% 4% (2%) 4% 6% % NSW VIC QLD SA WA TAS NT ACT NZ (in NZ$) Base Lifetime Care 1 Jul 13 >> The ACT s rate remains the highest, with the increase solely relating to the $34 levy to fund the Lifetime Care and Support Scheme which commenced 1 July 214. Note that the rate shown makes no allowance for rebates and discounts that ACT insurers may offer. >> The largest increase in the year was in SA, following the commencement of the Lifetime Support Scheme on 1 July 214. Despite the increase, the premium rate remains lower than the premium that applied before the 213 reforms to the scheme ($512). >> Rate changes in other jurisdictions have been minor. >> Rates in Queensland, WA, Tasmania and NZ remain considerably lower than other jurisdictions (with further reductions planned in NZ, as discussed later). 2 d finitive AUGUST 214

3 Affordability Index igure 2 shows a CTP affordability index by jurisdiction at July 214 (yellow bar). The index expresses the standard metro car premium as a percentage of average weekly earnings a smaller percentage means better affordability. The diamonds show the affordability index at July 213. Since the jurisdictions have different benefit regimes, we can t draw conclusions about comparative scheme performance from this index. IGURE 2 CTP AORDABILITY INDEX AT JULY 214 Class 1 Metro Premium as % of AWE 5% 4% 3% 2% 1% % NSW VIC QLD SA WA TAS NT ACT NZ Jul 14 Jul 13 Since a year ago: >> Affordability has improved in Tasmania and NZ (and marginally in NSW). >> Affordability has worsened in SA, the NT and the ACT: > or SA and the ACT, the change was largely due to the new lifetime care schemes. > or the NT, benefit changes to make the scheme NIIS-compliant were funded from capital reserves. The premium increase was the normal annual increase, which for this year outpaced wage inflation. WA remains the most affordable by a considerable margin, with Queensland and Tasmania next best. AUGUST 214 d finitive 3

4 Jurisdiction Roundup NSW Some movement in Class 1 premiums igure 3 shows the premium rates for a model driver at August 214, compared to March IGURE 3 NSW CLASS 1 METRO PREMIUMS AAMI Allianz CIC- Allianz GIO NRMA QBE Zurich Mar 14 Aug 14 or a model driver : 39yr old with a new car, comprehensive insurance with full NCD, no demerit points and no at-fault accidents for two years. Since March 214 AAMI, Allianz and QBE have reduced their rates by 1-2%, whereas CIC Allianz put through a $41 (8%) increase, making it the most expensive. QBE remains the cheapest and is now $1 lower than its closest competitor. The range between the highest and lowest quotes has increased from $32 at March to $56 at August. QBE gains NSW market share through competitive pricing igure 4 shows market shares for the years ending March 214 and March 213. People on the move Vivek Bhatia has been appointed as the new CEO of the NSW Safety, Return to Work and Support division, commencing 25 August. He replaces Julie Newman PSM who retired from the role on 1 August. 4% 35% 3% 25% 2% 15% 1% 5% % IGURE 4 NSW MARKET SHARES NRMA AAMI + GIO QBE Alz + CIC Zurich Mar 13 Mar 14 After a few years of stable market shares, QBE has gained, mainly at the expense of NRMA. This increase coincides with QBE s more competitive pricing. 4 d finitive AUGUST 214

5 Legally represented frequency has continued to rise The frequency of legally represented claims has continued to increase in NSW. This feature, together with interest rates, has been the main driver of above inflation increases in premium rates since 28. There are a number of factors which make measuring and understanding the increase in frequency in the last 12 months uncertain: 1. The proposed CTP reforms, while not implemented, appear to have led to a large spike in claim reports between March 213 (when the draft Bill was introduced) and September 213 (just after the Bill was withdrawn). While this now appears to have worked its way through the system, some measurement uncertainty remains. 2. Changes to the workers compensation system in 212 meant that many people injured on journeys to and from work might now be making claims directly against CTP insurers (rather than making a workers compensation claim which is subsequently recovered from the CTP insurer); however the claim records do not separately identify these claims. igure 5 shows our estimates of ultimate claim frequency for legally represented claims and other claims over the last six years; the graph excludes ANs. LTCSA trialling direct funding of attendant care The LTCSA is currently running a trial of direct funding for attendant care services, as the Authority works to increase participation, choice and control for Scheme participants. 15 participants with stable care needs will receive money for attendant care services and will be able to either use an attendant care provider or directly employ a carer. The ATO has ruled that such direct funding of attendant care will not be treated as income for taxation purposes. The trial will be evaluated, in terms of cost and outcomes for participants, by the Social Policy Research Centre (UNSW). 2.5 IGURE 5 NSW ULTIMATE CLAIM REQUENCY Ultimate requency (per 1, vehicles) Mar 9 Mar 1 Mar 11 Mar 12 Mar 13 Mar 14 Accident Year Legally Represented Other The reduction in other claims in 213 was due mainly to a reduction in workers compensation recovery claims. Our latest analysis shows a similar claim frequency for 214 as for 212, but with a higher proportion of legally represented claims. AUGUST 214 d finitive 5

6 214 Update of 211 CARS Review The 211 CARS Review found that CARS was working well, saving the scheme over $1 million a year. However, it found that structural reform was essential to reverse the movement of cases away from CARS and to minimise the avenues for legal challenge to CARS decisions. The 214 CARS Update does not alter any of the 211 recommendations. The MAA s programme of scheme enhancements will address the core issues raised in the 211 and 214 CARS reviews. Improving the scheme within the current legislative regime As mentioned above, the significant legislative reform to the NSW CTP Scheme (which would have seen a largely defined statutory benefit, nofault scheme replace the modified common law regime) was withdrawn from parliament after stalling in the upper house. Since then, the MAA has embarked on a CTP enhancements programme. The objective is to improve the operations of the CTP scheme, working within the current legislative regime. The desired outcomes include: >> aster claims resolution >> Reduced dispute rates >> Better claimant experience >> Downward pressure on premiums >> Increasing scheme efficiency (in terms of premium dollars returned to claimants) >> Greater confidence in the scheme. A number of claims projects which aim to achieve these outcomes are in various stages of consultation and implementation, including: >> Streamlining and simplifying the claim notification process and forms >> Reviewing the claims handling guidelines for insurers >> Reviewing the claims and medical assessment guidelines >> Issuing best practice decision templates to promote consistency and reduce disputation >> Improving customer service initiatives. This package of initiatives should result in lower claims friction costs and lead to improved outcomes, especially reduced disputes and claim durations. Legal costs revisit Consultation with key stakeholders is underway regarding the Motor Accidents Compensation (Costs) Regulation, which covers legal and medical service provider fees as well as commissions. One aim is to amend the regulations to reflect the changes to pre- CARS procedures in 28 (i.e. to provide appropriate fees for the front-end preparation for matters pre-cars). Greater transparency and disclosure of legal costs is another aim. The President of the NSW Law Society has made public comments on the draft proposals... Watch this space! New Claims Assessment Guidelines the Smalley Amendments The Smalley decision in the NSW Court of Appeal found that claims with procedural defects (e.g. late reported claims) and claims where liability is not determined within three months would be automatically exempt from CARS and be allowed to proceed within the court system. This would have led to a significant increase in the number of litigated matters, with consequential cost inflation. The following amendments to the Claims Assessment Guidelines, which deal with the Smalley issues, came into effect on 1 May 214: >> Mandatory exemption from CARS for denial of liability now applies only where fault is denied (as opposed to denials on procedural grounds) >> Mandatory exemption from CARS no longer applies if the insurer alleges contributory negligence of greater than 25% >> Deemed denial (where the insurer has not determined liability within three months) is no longer to be considered by a Claims Assessor when issuing a discretionary exemption. In assessing suitability for CARS, a Claims Assessor must now consider whether the claim involves issues of liability, including issues of contributory negligence, fault and/or causation. These amendments remedy the Smalley defect and will mean that a greater number of matters will be kept within CARS, supporting the broader scheme objective of resolving the majority of claim disputes out of court. 6 d finitive AUGUST 214

7 Tort Temperature: cases of interest The following table includes some background and commentary on recent cases of interest. In each case we indicate our assessed Tort Temperature rating. A higher rating indicates greater upwards pressure on future claim costs arising from the judgement. Case Johnston v Stock 14 May Description A driver saw a grossly intoxicated pedestrian walking along a footpath and slowed to 4km/h. The pedestrian stopped at a crossing, stared at the approaching car, took two large steps and was hit by the car. The primary judge found that the driver was negligent in failing to take precautionary steps other than slowing down. The Court of Appeal overturned that finding, ruling that the driver was entitled to think that the pedestrian had seen the car and would act accordingly there was therefore no need for further precautions. 1 This case provides an example of courts holding pedestrians more accountable for failing to look out for their own safety. Nominal Defendant v Ross 3 July The claimant Mr Ross stepped off the footpath outside Terminal 2 at Sydney Airport and was struck by an unidentified minibus. The District Court originally reduced Mr Ross s damages by 2% for contributory negligence. The Court of Appeal stated that failure by a pedestrian to keep a proper lookout might result in injury to himself; however, failure by a driver of a large vehicle, such as a minibus, might result in not only injury to himself, but serious injury or death to an innocent party. To that end, it was held that moral culpability weighs more heavily against a driver than a pedestrian, even though the pedestrian s actions may have contributed to an accident to a similar degree. Despite this, the Court increased contributory negligence from 2% to 35%. Although suggesting that moral culpability may rest more with the driver, this case is another example of courts holding pedestrians responsible for their own safety. T and X Company Pty Ltd v Chivas 22 July A taxi was crossing a busy city junction when Mr Chivas ran out against the red pedestrian light, collided with the taxi, and suffered fatal injuries. In the nervous shock claim made by Mr Chivas s father, the primary judge found breach of duty on the basis that the taxi was travelling at an excessive speed, but also reduced damages by 4% for contributory negligence. The Court of Appeal increased the contributory negligence to 75%, finding that the unpredictable action taken by Mr Chivas in seeking to cross the road against a red light, in the face of oncoming traffic, must bear greater weight in terms of responsibility for the accident. In contrast to the Ross case, this ruling suggests that it is not necessary to compare the harm caused by the parties, but that the relative culpability of the parties will be assessed on their respective failure to exercise due care. QBE v Volokhova 1 June The 33 year old claimant had qualified as a solicitor in the Ukraine, but was injured before she had taken steps to have her qualifications recognised in Australia. She gave evidence that she had intended to practise as a solicitor in a few years time, and sought future loss of earning capacity damages in excess of $1 million. The CARS Assessor awarded $5, as a buffer for her future loss of earning capacity because there were many uncertain factors including whether she would have finished the course had she not been injured, whether she would have obtained employment as a solicitor, what sort of firm would have employed her, and how her condition (physical and psychological) would progress. QBE sought an administrative law challenge, submitting that the damages were manifestly excessive and that the Assessor had taken into account irrelevant matters. The Supreme Court dismissed QBE s summons and emphasised that CARS Assessors are given discretion to give weight to the evidence and other considerations in a manner in which they see fit for the circumstances. This decision is the latest in a line of cases stating that damages for future economic loss can be awarded as a buffer in circumstances where the CARS Assessor is not in a position to make specific or calculated findings, due to uncertainties around a claimant s earning capacity. AUGUST 214 d finitive 7

8 Changes to vehicle registration? The NSW Government is considering changes to light vehicle registration, to improve road safety and environmental outcomes by encouraging the uptake of safer and greener vehicles. Proposed reforms include: >> Changing the passenger vehicle registration charge to allow for vehicle safety measures (e.g. ANCAP ratings) and environmental criteria (e.g. emissions). >> Changing the current flat registration fee for motorcycles to encourage the purchase of models with lower power-to-weight ratios and ABS brakes. >> Including vehicle safety criteria in the CTP premium guidelines allowing insurers to use a vehicle s safety as a factor in premium pricing. Victoria Good signs coming from irst Service strategy The TAC s irst Service initiative is designed to streamline the claim acceptance process and reduce the administrative burden on both clients and the TAC. There is no longer a formal claim form, and the TAC is using a predictive decision support tool as well as alternative sources of accident and claimant information (primarily hospital data). The target is to accept 8% of claims within five days of accident for hospitalised claims, and within five days of lodgement for other claims. ollowing the launch of the initiative in October 213, there has been a marked speeding up of claim acceptances. Around 7 claims per month (about 5% of accepted claims) are now being accepted within the month of accident, up from 2 claims per month. Unmasking the hidden toll of serious injury As reported in our September 213 CTP News, the Road Safety Committee of the Parliament of Victoria undertook an inquiry into Serious Injury. The inquiry noted a need to shift away from Victoria s traditional road safety mono-focus on road fatalities towards a wider awareness of the impact and cost of all serious injuries. urthermore, future road safety decisions need to be based on best practice injury definitions and data collection. In its final report, tabled on 28 May 214, the Committee made 43 recommendations and listed 47 findings. The full report can be found at parliament.vic.gov.au/rsc. 8 d finitive AUGUST 214

9 Queensland No movement at the station There have been no changes in the MAIC ceiling price for the two quarters since our last CTP News. urthermore, there have been no changes in the rates charged by insurers Allianz remains the only insurer charging below the current ceiling price of $337 (at $335). Settlement environment appears favourable The main claim trend we have identified in Queensland over the last 12 months is favourable claim size experience, with the average size for claims finalised in 213 6% lower in real terms than 212. or lower severity claims, the average size was 1% lower. We conclude from our research that the recent experience can t necessarily be taken at face value. We believe it is the result of a change in the order of finalisation; segmentation of the 213 finalisation experience shows both a speeding up of claim finalisations and a much higher number of the least severe claims (see graph below). MAIC had, until recently, shared our view of the recent experience in establishing floor and ceiling prices. However, in establishing the 1 October 214 prices, the regulator now views a quarter of the observed reduction in average size as sustainable, although this has not yet been reflected in the ceiling price. igure 6 shows how the mix of claims severity has been changing. 6% IGURE 6 QLD CLAIM SEVERITY MIX 5% Proportion of Claims 4% 3% 2% 1% % Injury Scale Value Band The proportion of claims in the lowest band (Injury Scale Values -4), which have an average size of around $35,, has grown in the last three years from 17% to 25% of all finalisations. At the same time, the proportion of claims in the highest band (1+), with an average size of around $175,, has fallen from 3% to 2%. We are not aware of any changes to the severity of road crashes that would cause such movements. This suggests a speeding up of smaller claim finalisations, with a catch-up in larger claim finalisations to come. AUGUST 214 d finitive 9

10 People on the move Aaron Chia, formerly the Deputy CEO of the SA Ambulance Service, became the CEO of MAC on 21 July. South Australia A new source of revenue for private insurers? In mid-june 214, the SA Government announced its intention to open CTP insurance to the private sector from 1 July 216. The Motor Accident Commission (MAC) will end its role as the sole provider of SA CTP insurance, and will cease writing new CTP policies. MAC s premium revenue for 212/13 was $58 million; this was prior to tort reform and the introduction of the Lifetime Support Scheme. The CTP premium pool will be considerably lower from 214/15 based on vehicle growth trends and rate changes since 212/13, we estimate it will be about $43 million. The decision to privatise the scheme was driven by the SA Government s desire to reduce debt, as well as a view that underwriting CTP is not an essential service that should be delivered by government. MAC is expected to return around $5 million to the Government in 216/17 from its surplus net assets. This money will be diverted to the Highways und, to invest in improving the safety of roads in SA. Western Australia Ride-sharing: A breach of CTP? In NSW, Queensland and Victoria, governments have been taking measures against ride-sharing services such as Uber. In WA, private drivers of privately owned vehicles may carry paying passengers registered with the service. The Insurance Commission of WA recently warned, however, that the practice may be in breach of CTP policies unless the vehicles: >> Are licensed for hire, fare and reward with the Department of Transport, and >> Have paid the corresponding CTP premium. In the event of an accident caused by the negligent driving of an incorrectly licensed vehicle, the Insurance Commission would still compensate any injured third parties, but it may seek to recover costs from the negligent owner/driver. ACT Suncorp claims 11% market share Three Suncorp brands began writing policies in the ACT from 15 July 213: AAMI, APIA and GIO. The Suncorp premiums (for private use passenger vehicles) are all higher than NRMA premiums, but Suncorp has been offering discounts to some motorists with good driving records. While no market share information is available, Suncorp has claimed in the insurance press that it has won 11% of the market, with take-up well above expectations. 1 d finitive AUGUST 214

11 Northern Territory NT MAC benefits now aligned with NIIS The MAC NIIS commenced on 1 July 214. As the NT already had a nofault scheme, meeting minimum NIIS benchmarks was achieved through an amendment to the Motor Accident (Compensation) Act. The key changes were to remove the cap on attendant care hours, and to increase the hourly rate paid for attendant care; the increase in the hourly rate also applies to claimants injured prior to 1 July 214. The cost of these changes will be funded from the scheme s capital reserves. There will be no increase in premiums beyond normal annual increases. A big day for NIIS 1 July 214 was a big day for NIIS; schemes commenced in SA, NT and the ACT. Around two- thirds of Australian vehicles are now covered by some form of NIIS or equivalent, with only Queensland and WA to make announcements. Tighter eligibility rules now apply The coverage of the MAC scheme also changed from 1 July 214. Those who don t contribute to the scheme through motor vehicle registration are no longer covered, affecting: >> Owners and drivers/riders of unregistered vehicles (or un-registrable vehicles, such as motocross and quad bikes), though their passengers and pedestrians are still covered. >> Drivers/riders, passengers and officials at motor sports events. >> People engaged in high-speed time trials. Sources >> igure 1 and igure 2: New Zealand 41% reduction in Motor Levy for 215/16 The NZ Government has announced that the average levy paid by motorists from 1 July 215 will reduce by 41%, from NZ$331 to NZ$195. This includes reductions in the licence fee and a drop of 3 cents per litre in the petrol levy. The reductions follow cuts to the 214/15 rates for the Work and Earners Accounts. Those accounts had achieved full funding at 3 September 213, while the Motor Vehicle Account was 91% funded at that date. With the Motor Vehicle Account now nearing full funding, the Government has decided to reduce the Account s residual levy, which funds pre-1999 liabilities (this is part of the overall 41% reduction in levies). There are, however, no changes to the levies for motorcycles and mopeds. The Government noted that these levies are currently only 25-35% of the premiums implied by actual claims costs. > NSW: prices.maa.nsw.gov.au > VIC: tac.vic.gov.au > QLD: maic.qld.gov.au > SA: mac.sa.gov.au > WA: icwa.wa.gov.au > TAS: maib.tas.gov.au > NT: transport.nt.gov.au > ACT: treasury.act.gov.au/ compulsorytpi > NZ: acc.co.nz >> igure 3: prices.maa.nsw.gov.au >> igure 4 and igure 5: MAA data > NSW, LTCSA Attendant Care Trial: LTCS Newsletter #77 >> igure 6: MAIC data > ACT, Suncorp market share: insurancenews.com 21 July 214 > WA, ride-sharing: ICWA media statement 28 July 214 AUGUST 214 d finitive 11

12 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 214 inity Consulting Pty Limited. Australia & New Zealand Insurance Industry Award Service Provider of the Year 26, 27, 28, 29 and 211. Australian Insurance Industry Awards - Inaugural Inductee into the Hall of ame 212. Australia Sydney Tel Level 7, 155 George Street The Rocks, NSW 2 Melbourne Tel Level 3, 3 Collins Street Melbourne, VIC 3 New Zealand Auckland Tel Level 5, 79 Queen Street Auckland 11 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