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

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1 d finitive [ accident compensation ] Keeping you informed. MARCH 2015 CTP News A solid understanding of industry news, along with insights into market performance, are vital for CTP insurers. This d finitive aims to help with this, by providing a comprehensive overview of the latest CTP news across Australia and New Zealand. In this edition, we: >> Review the financial performance of CTP schemes in Australia and NZ in the year to June 2014 it was a good year for most >> Compare trends in claim frequency over the last four years most have decreased Please contact one of our CTP experts if you have any questions or comments regarding this d finitive or to learn more about Finity s CTP offering. Alternatively, read more at finity.com.au. >> Report on the recent Green Paper for an NIIS in WA. We also highlight recent court cases and other developments around the jurisdictions. finity.com.au Sydney Auckland Melbourne

2 Scheme Performance 2013/14 Most saw improvement Figure 1 shows a five-year history of funding ratios for the government monopoly schemes in Australia and NZ. FIGURE 1 FUNDING RATIOS 1 OF MONOPOLY CTP SCHEMES Funding ratio (%) TAC (Vic) MAIB (Tas) TIO MAC (NT) MAC (SA) TPIF (WA) LTCS (NSW) ACC MV (NZ) Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 The funding positions for most schemes have improved in the year to June Only the Northern Territory and Western Australia had reductions, but they both remain well above 100% funding. The TAC and the ACC Motor Vehicle Account, the two schemes that were below full funding a year ago, are both just short of 100% at June All other schemes have funding ratios of around 140% or more. We note however: >> The NT government announced it would withdraw $140 million from the TIO MAC scheme at the time of the TIO sale (see next page); all else being equal, this would reduce MAC s funding ratio from 166% to 132%. >> The SA government has announced it will withdraw around $500 million from the MAC SA scheme if privatisation of the scheme goes ahead (see our previous CTP News); this would reduce MAC SA s funding ratio from 155% to 133%. 2 d finitive MARCH Total assets divided by total liabilities. There are some definitional differences from the funding ratios quoted by the schemes.

3 Table 1 summarises some of the other key metrics for 2013/14. TABLE 1 KEY METRICS FOR 2013/14 2 TAC (Vic) MAIB (Tas) TIO MAC (NT) MAC (SA) TPIF (WA) LTCS (NSW) ACC MV (NZ) Change in gross OSC liabilities +8% +6% +22% -11% +11% +16% 3 +1% Investment return (previous year) 14.7% 12.8% 13.5% 11.2% 10.1% 12.8% 6.3% 15.5% 15.5% 9.2% 10.2% 14.5% 13.3% 9.9% Net profit (before tax) $692m $172m $22m $484m $72m $334m $946 Comments on claims experience Favourable claims experience contributed $325m to insurance profit. Strong claims management led to an actuarial release of $142m. Below-budget claim costs and favourable revaluations of claim reserves were partly offset by the impact of economic assumptions (higher superimposed inflation for Common Law, and lower discount rates). Legislation was amended to align with NIIS minimum benchmarks. This added $62m to the claims liabilities and accounts for most of the 22% increase in OSC liabilities. Performance has been better than actuarial expectations. Claims received in 13/14 were 18.5% lower than 12/13, attributed to fewer road casualties and scheme reforms. Higher than expected claims costs were driven by the finalisation of a record number of catastrophic injury claims (44 claims with average size of $5.9m). Liabilities were lower than budget due to a lower provision for participant care and support services (similar to outcome in 12/13). Business as usual for the Northern Territory s MAC Scheme The Territory Insurance Office (TIO) was the last government-owned insurer until the NT Government sold it to Allianz in November The CTP scheme (known as MAC) was also part of TIO and, like other states before it, the Government declined to allow a private monopoly. The deal, much like that established more than 20 years ago in South Australia, is that the CTP scheme and fund remain in the public sector with Allianz being given a long term contract to manage the scheme. We note that while the scheme was not included in the sale, the withdrawal of $140 million of excess capital was included in the Government s reckoning of the sale proceeds. Allianz will have significant responsibility, and the public interest will be overseen by a MAC Commissioner with support from NT Treasury. In effect, it s business as usual for the MAC scheme. 2 For 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. MARCH 2015 d finitive 3

4 Claim Frequency Trends Mostly downwards Figure 2 shows the past four years CTP claim frequencies for Australian states and territories and New Zealand. Each jurisdiction s frequency is expressed as an index relative to 2010/11. FIGURE 2 CTP CLAIM FREQUENCY TRENDS Frequency Index NSW VIC QLD SA WA TAS NT NZ NSW: Ultimate accident year frequency, claims + ANFs (excluding at fault ANFs) VIC: Ultimate accident year frequency, no fault claims QLD: Ultimate accident year frequency, all claims SA, WA, TAS: Number lodged in year, all claims NT: Number lodged in year, non-nil claims NZ: Entitlement claims in the Motor Vehicle Account 10/11 11/12 12/13 13/14 Across the four years to 2013/14, claim frequencies have reduced for all jurisdictions except NSW and the NT (2013/14 frequency for each is 7% higher than 2010/11) and NZ (frequency unchanged). The largest reductions since 2010/11 are in SA (26%) and WA (18%). Focusing on movements in the last year: NSW VIC SA NT QLD, WA, TAS and NZ Up 7% due to increased propensity to claim. Legal representation continues to increase; the proportion of claims with legal involvement is now around 80%, compared with 60% six years ago. Up 4% following introduction of the First Service strategy. Additional claims are expected to be low (or no) cost claims; this is supported by a stable frequency for 14-day hospitalised claims. Down 20% as a result of both a reduction in casualty rate and recent scheme reforms. Up 10% due to higher reporting level in the last two months of the year; the cause is unclear but will be monitored closely in the coming year. Only small movements (3% or less). 4 d finitive MARCH 2015

5 Jurisdiction Roundup NSW Lots of movements in Class 1 premiums Table 2 shows the premium rates for a model driver at February 2015, compared to August Each of the NSW insurers has changed its prices in the last six months. TABLE 2 NSW CLASS 1 METRO PREMIUMS Insurer Aug 14 Feb 15 Change % Change AAMI $524 $505 ($19) (4%) Allianz $542 $539 ($3) (1%) CIC-Allianz $565 $546 ($19) (3%) GIO $519 $509 ($10) (2%) NRMA $532 $544 $13 2% QBE $509 $500 ($9) (2%) Zurich $547 $577 $30 5% Average $529 $529 $0 0% For 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. Each of the insurers has changed its best price since our last update at August 2014, with a mix of increases and decreases. QBE s premium remains the cheapest, but the gap to its closest competitor has narrowed to only $5. Zurich is now the most expensive. The range between the highest and lowest quotes has increased from $56 at August 2014 to $77 at February Small market share movements In our previous edition of CTP News, we saw that QBE had gained significant market share, mainly at the expense of NRMA, coinciding with QBE s more competitive pricing. Figure 3 adds a further six months to the story. MARCH 2015 d finitive 5

6 FIGURE 3 NSW MARKET SHARES 40% 35% 30% Proportion of Premium 25% 20% 15% 10% 5% 0% NRMA AAMI+GIO QBE Alz+CIC Zurich QBE continued to make some gains in market share in 2014, although less than the previous year. The Suncorp group (AAMI & GIO) and the Allianz group (Allianz & CIC-Allianz) also made small gains in 2014, while both NRMA and Zurich lost market share. Blameless Accidents (the Axiak decision) Cover for people injured in so-called blameless accidents was introduced in 2006 through s7b of the Motor Accidents Compensation Act. The examples always cited for its application are that of a driver who has a sudden medical event, and where an animal runs onto the road. In 2012, the Court of Appeal decision in Axiak v Ingram determined that a vehicle/pedestrian accident could be a blameless accident even if the pedestrian was partly at fault (contributory negligence), as long as there was no fault on the part of a driver. If deemed blameless, notwithstanding that the pedestrian is to blame, the pedestrian may be able to access damages. This anomaly is partly addressed by reducing the damages for the contributory negligence of the pedestrian. The reduction may be as much as 100%. The Court of Appeal decision in Davis v Swift (2014) followed this reasoning and reduced a claim by 80% for contributory negligence, where the primary judge had reduced the claim by 100%. The plaintiff suffered injuries as a pedestrian when her right leg and knee were run over by the defendant s vehicle as it pulled away from the parking lane. The plaintiff commenced proceedings for damages in negligence and, if that proved unsuccessful, on the basis of a blameless accident. The version of events accepted by the Court was that the plaintiff stepped backwards from the middle of the road into the path of the defendant s vehicle. 6 d finitive MARCH 2015

7 The appellate decision suggests that a reduction of 100% due to contributory negligence in a blameless accident would apply only where the plaintiff s departure from the expected standard of care fell in the worst possible case where the plaintiff consciously places him/herself in danger or where his/her judgement is affected by drugs or alcohol. It is clear from the decision that the judges, who are bound to follow Axiak, are not comfortable with the state of the law in this area. It suggests that it may be possible to overturn the principle if a suitable case is run. Tort Temperature: Cases of Interest Table 3 provides commentary on recent cases of interest. In each case we indicate our assessed Tort Temperature rating. TABLE 3 RECENT CASES OF INTEREST CASE: Leach v Nominal Defendant NSW Court of Appeal 6 August The NSW Court of Appeal upheld the finding that the Nominal Defendant was not liable for injuries a passenger sustained when the driver of another vehicle shot him Mr Leach was a passenger in a sedan that was struck by a Commodore. The Commodore driver fired gunshots, causing Mr Leach serious injuries. The driver of the stolen, uninsured Commodore (which was later found burnt out) was never identified. Mr Leach brought proceedings against the Nominal Defendant, arguing the Commodore driver s conduct caused his injuries. District Court Judge Kearns concluded that Mr Leach s injuries did not fall within s3a of the Act and ordered a verdict for the Nominal Defendant. Mr Leach appealed, but the Court of Appeal upheld Judge Kearns s finding. She found Mr Leach s injuries were not caused by the Commodore driver s use or operation of a vehicle, opining that the gunfire was the dominant cause of his injuries. This case affirms that the courts will not extend CTP coverage in circumstances where the driving of the vehicle or collision is not the proximate cause of the injuries. CASE: Eptec Pty Ltd v Alaee NSW Court of Appeal 14 November Mr Alaee brought a claim for damages for injuries he sustained while working inside the enclosed platform of a cherry picker, which was being operated by a co-worker. The cherry picker started to shake, throwing Mr Alaee against the side rails. Judge Garling found that Mr Alaee s injury was caused by the fault of the driver/operator in the operation and during the driving of the cherry picker. The issue on appeal was whether Mr Alaee s injuries were a result of and caused during the driving of the vehicle, as required by section 3A of the Act. The Court of Appeal found that the evidence did not support a finding that the operator had engaged the locomotive functions of the cherry picker, only that the platform was being lowered while the cherry picker was stationary. As the vehicle was not being driven at the time of Mr Alaee s injury, the injury was not the result of a motor accident as defined in the Act This case is another example of the Court s interpretation of section 3A, highlighting that the injury must be as a result of and during the driving of the motor vehicle in order to fall within the definition of a motor accident. MARCH 2015 d finitive 7

8 Changes Proposed to Cost Regulations The submission period for feedback on proposed changes to the Motor Accident Compensation Regulations closed recently. The Regulations apply to maximum costs for legal and medico-legal services, costs of claims assessors and other cost matters. The mooted changes are: The maximum recoverable legal and medico-legal fees will be increased with CPI. Legal practitioners acting for injured claimants will be required to disclose to the MAA a costs breakdown setting out the amount paid by the insurer, a breakdown of all deductions (including legal costs and disbursements), and the amount paid to the claimant. The MAA will be allowed to use this information to produce statistics and to refer to the Legal Services Commissioner any information that may demonstrate overcharging. Legal practitioners will be prohibited from either paying or receiving referral fees in connection with a motor accident claim. Cost penalties will apply to insurers who reject an award of damages made by Claims Assessment and Resolution Service (CARS) and commence litigation. This provision mirrors the cost penalty provisions that apply to injured people who reject a CARS decision. Medical practitioners will be prevented from being paid twice for the provision of a medical report where this has been requested by both parties. A CARS assessor can assess the reasonable costs associated with complying with a direction to produce documents; this is required because parties have challenged this in the past. Queensland Suncorp cuts rate The MAIC ceiling price remains at $337 and has not changed since 1 April 2014, and most insurers are charging the same rates as a year ago. Suncorp, however, has applied a $13 reduction to the ceiling price (now charging $324) and joins Allianz (charging $335) in pricing below the ceiling. TABLE 4 QLD CLASS 1 METRO PREMIUMS Insurer August 2014 Difference from Ceiling April 2015 Difference from Ceiling Ceiling $337 $337 Allianz $335 ($2) $335 ($2) QBE $337 $0 $337 $0 RACQ $337 $0 $337 $0 Suncorp $337 $0 $324 ($13) 8 d finitive MARCH 2015

9 Who has picked up IAG s market share? Figure 4 shows Queensland market shares in the year to June 2013 the last full year available where NRMA was underwriting in Queensland and the six months to December 2014 (the most recent available). 60% FIGURE 4 QUEENSLAND MARKET SHARES 50% Proportion of Premium 40% 30% 20% 10% 0% Allianz QBE RACQ Suncorp NRMA Jun 13 Dec 14 NRMA s market share has been split fairly evenly, with Allianz picking up 2% and QBE, RACQ and Suncorp 1% each. South Australia Tort Temperature: Cases of Interest TABLE 5 RECENT CASES OF INTEREST CASE: Allen v Chadwick Full Court of the Supreme Court of South Australia 16 September The plaintiff was a rear seat passenger and sustained spinal injuries leading to permanent paraplegia as a result of the defendant s negligence in the driving of a motor vehicle. The defendant was intoxicated and the plaintiff was not wearing a seatbelt. The Judge at first instance: >> Did not reduce damages by 50% on account of the defendant s intoxication, holding that no person in the plaintiff s situation could reasonably be expected to have had any practical choice other than to get into the vehicle. >> Did reduce the plaintiff s damages by 25% on account of her failure to wear a seatbelt. On appeal, the Supreme Court (by a 2-1 majority): >> Affirmed that the test for relying on the skill and care of an intoxicated person is objective, and that the plaintiff could not reasonably be expected to have done anything except get into the vehicle, so the trial judge was correct in not reducing damages. >> Overturned the trial judge s reduction for not wearing a seatbelt on the grounds that the plaintiff was prevented from putting on the seatbelt by the defendant s manner of driving When determining whether exceptions to mandatory statutory reductions for contributory negligence apply, courts examine how a reasonable person in the plaintiff s shoes would have acted. Similar provisions apply in other jurisdictions. MARCH 2015 d finitive 9

10 Western Australia Tort Temperature: Cases of Interest TABLE 6 RECENT CASES OF INTEREST CASE: Proudlove v Burridge District Court of Western Australia 19 November The plaintiff Mr Proudlove, a young footballer, was severely disabled after the vehicle in which he was a passenger hit a horse and left the road. This case received much attention in WA, highlighting the issues surrounding the case for no-fault insurance. Both sides of WA politics stated that the public feedback about Mr Proudlove s circumstances indicated a willingness to pay for no-fault coverage (see below). The accident occurred at night on a country road where the speed limit was 110km/h. Previously another motorist, having seen two horses on the road, had stopped her car with the headlights facing oncoming traffic, put her hazard lights on and attempted to shoo the horses away. When this proved unsuccessful, she tried to wave a warning to oncoming vehicles. The plaintiff alleged that the driver of the vehicle he was in was negligent for failing to see the horses, the woman on the road or the lights of the stopped vehicle. The plaintiff s claim was dismissed. The Court found that the defendant was driving within the speed limit and otherwise carefully. While he was found to be negligent for failing to see the hazards, the plaintiff s case ultimately failed on causation. The Court held that it had not been shown that the accident could have been avoided or lessened to any appreciable extent if the defendant had observed the hazards, braked and swerved. The collision appeared to be inevitable or unavoidable. Government releases NIIS Green Paper On 15 October 2014, the WA State Government released a CTP Green Paper for community consultation on the possible introduction of a no-fault CTP personal injury insurance scheme for catastrophic injuries (i.e. an NIIS). The purpose of the Green Paper was to inform the community and seek feedback on the merits, costs and options for adding this additional cover to the State s existing CTP insurance scheme. The Green Paper seeks feedback on three options for WA: OPTION 1 OPTION 2 OPTION 3 No change No fault insurance for all catastrophic injuries No fault insurance only for catastrophic injuries not currently covered by CTP Current CTP Premium Estimated Additional Cost of Option Estimated Total Premium $291 Nil $109 $101 $291 $400 $ d finitive MARCH 2015

11 The Green Paper focuses on Option 2, which is consistent with arrangements in other States. Key information provided in the Green Paper includes: >> 92 people are estimated to suffer catastrophic injuries each year > 48 of these are covered by the existing CTP system (i.e. injured person is not at fault, and an at-fault driver can be found). > 44 do not have recourse through the CTP system (i.e. at fault, or there is no at-fault driver). >> The average cost of providing lifetime care and support services is $4 million per claimant. The WA CTP premium for a family car is currently $291 (including GST and insurance duty), which is the lowest in Australia. WA CTP premiums would compare favourably even after the introduction of an NIIS. Sources >> Figure 1 & Table 1: 30 June 2014 Annual Reports of TAC, MAIB, TIO, MAC, ICWA, LTCSA, ACC. >> Figure 2: > NSW: Finity analysis of MAA data > VIC: Provided by the TAC > QLD: Finity analysis of MAIC data > SA: MAC Jun14 Annual Report > WA: ICWA Jun14 Annual Report > TAS: MAIB Jun14 Annual Report > NT: Provided by the TIO > NZ: ACC Jun14 FCR >> Table 2: prices.maa.nsw.gov.au ACT Competition hots up in the ACT Table 7 shows the premiums that will apply for CTP insurance in the ACT from 1 March 2015, together with previous premiums and the movement. TABLE 7 ACT PREMIUMS: PRIVATE USE PASSENGER VEHICLE >> Figure 3: MAA data >> Table 4: >> Figure 4: MAIC Qld CTP Statistical Information >> Table 7: compulsorytpi/premiums Insurer Effective 15 Jul 2014 Effective 1 Mar 2015 Change % Change AAMI (8) (1%) APIA (1) (0%) GIO (22) (4%) NRMA % 1 NRMA s premium was effective from 1 December 2014 NRMA increased its premium by $10 from 1 December Suncorp subsequently reduced premiums across its three brands. The largest decrease was for GIO, where the premium is now a full $20 below NRMA s price. MARCH 2015 d finitive 11

12 finity.com.au d finitive [ accident compensation ] 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 Finity s CTP Team Finity 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, Finity 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 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 2015 Finity Consulting Pty Limited. Contact the Authors Karen Cutter Tel karen.cutter@finity.com.au Sydney Office Kane Boulton Tel kane.boulton@finity.com.au Sydney Office Australian & New Zealand Insurance Industry Award Service Provider of the Year 2006, 2007, , 2011, 2014 (NZ). Australian Insurance Industry Awards Inaugural Inductee into the Hall of Fame 2012 Australia Sydney Tel Level 7, 155 George Street The Rocks, NSW 2000 Melbourne Tel Level 3, 30 Collins Street Melbourne, VIC 3000 New Zealand Auckland Tel Level 5, 79 Queen Street Auckland 1010 Finity Consulting Pty Limited ABN