Motorcycle levies. Below you ll find information explaining the way we set Motorcycle levies and more detail on our proposed levy rates for 2016/17.

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1 Motorcycle levies Motorcycle levy proposals at a glance For the 216/17 levy year we propose to: maintain the ACC levy portion of the motorcycle licensing fee for petrol driven motorcycles decrease the ACC levy portion of the motorcycle licensing fee for non-petrol driven motorcycles decrease the petrol levy from 6.9 cents per litre to 5.7 cents per litre (a 17% decrease). For the 216/17 levy year, Hon. Nikki Kaye, the Minister for ACC, has asked us to consult on her behalf to: decrease the Motorcycle Safety levy from $3 to $25 per motorcycle. Below you ll find information explaining the way we set Motorcycle levies and more detail on our proposed levy rates for 216/17. Explaining how we levy motor vehicles (including motorcycles) The Motor Vehicle Account and Motor Vehicle levies Our services are funded from levies which are collected in five separate ACC Accounts. The Motor Vehicle Account covers claims for all injuries that happen on public roads involving moving vehicles. Injuries involving vehicles such as quad bikes, tractors and off-road bikes (not on a public road) are covered by different Accounts. Owners of petrol driven vehicles pay a Motor Vehicle levy through: petrol at the pump (the current petrol levy is 6.9 cents per litre) the motor vehicle licensing fee (via the ACC levy portion of the rego). If you own a non-petrol vehicle your whole levy is paid through your rego. How we set Motor Vehicle levies When setting levies for vehicle owners, our priority is to make sure that the money collected will be enough to cover the cost of injuries including injuries which require lifelong support. We don t charge a standard or flat levy for each vehicle on the road. It s fairer for owners of those vehicles that pose a greater risk of injury to pay a larger share of the total levy. Grouping together vehicles with similar risk characteristics and then charging levies accordingly allows us to spread the cost more fairly, but it also ensures that no one road user is overly burdened with the costs of injuries. When calculating the Motor Vehicle levies we look at the claims we ve received in the past from each group. Using this information we forecast how many claims we think we ll get in the next year and what they ll cost not just over the next year, but for the total life of these claims. We allow for a number of other factors including healthcare costs, wage inflation, long-term discount rates and investment returns. We also consider a funding adjustment to allow for any surpluses or shortfalls in our previous estimates of the ongoing costs of claims for past injuries. Motorcycle levies, 216/17 Levy Consultation ACC 215., 216/17 Levy Consultation ACC of 9

2 After we ve assessed this information we calculate how much of the levy should be payable through a vehicle s rego and how much should be paid via petrol. A vehicle owner s exposure to risk depends on a number of factors such as vehicle type, safety features, road conditions, distance travelled, and time of day. We divide the Motor Vehicle levy between rego and petrol as it helps us build a more complete picture of an owner s risk of injury. Collecting a portion of the levy at the pump means we collect a portion based on distance travelled this is a useful way to measure exposure to risk. Collecting a levy through petrol also ensures that unlicensed vehicle owners (accounting for approximately 2% of the New Zealand vehicle fleet) also contribute towards the cost of injuries. This means the more you drive, the more at risk you are of an accident, and so the more you pay. It s also fairer for owners of multiple vehicles (such as car enthusiasts who collect vehicles) because a portion of their levy is based on usage. As the petrol levy is a flat rate and we can t distinguish vehicle class at the pump, this only allows us to measure risk of injury based on distance travelled. The rego levy allows us to more accurately assess the risk of injury associated with each vehicle based on the claims experience of its vehicle class. Looking at the claims we ve received in the past from each group gives us a good understanding of the severity, number and cost of the injuries associated with each vehicle class. We then set the total levy for each vehicle class accordingly, ensuring we collect an appropriate amount through the rego. For the 215/16 levy year owners of petrol driven motorcycles paid: 1% of their levy through petrol 9% of their levy through their rego. We re also proposing to reduce the petrol levy and increase the proportion of the levy you pay through petrol. We want you to tell us whether we ve got this balance right. You can read more about this further down. Understanding motorcycle levies Why we changed the way we levied motorcycles Before 21/11, if you owned a motorcycle, you paid around one and a half times the amount a light passenger vehicle (a car) owner paid in levies. And yet when we reviewed our motorcycle claims statistics looking at the number of claims, severity of injuries and the cost of treatment and ongoing support we found that even with the higher levy in place, motorcycle injuries were still being significantly cross-subsidised by other road users. In 21/11 we changed our approach to more closely align motorcycle levies with the relative risk of injuries in comparison with other vehicles. In saying that, we didn t want to overburden motorcyclists with high, perhaps even unaffordable, levies. One of the ways we ve tried to strike a balance is by retaining motorcycle levy rates when other vehicles have received a decrease. Even though the injury risk and the associated levies are now being applied more fairly across all vehicle owners, the majority of the funding for motorcycle injuries still comes from levies paid by other road users. The picture below shows that, for 216/17, we estimate the overall costs associated with motorcycle-related injuries will be $114 million, of which only $27 million will be funded directly from levies paid by motorcyclists. The remaining $87 million will be funded by other motor vehicle owners. Motorcyclists accidents are extremely expensive due to the severity of the injuries sustained, largely because of the lack of protection around the motorcyclist when they ride. A motorcycle is also less visible to other road users than a car or a truck. These factors give motorcycling a higher level of risk per kilometre travelled compared to other modes of transport. Motorcycle levies, 216/17 Levy Consultation ACC of 9

3 The graphs below show the number and average cost of motorcycle claims compared to other vehicles. Number of motorcycle claims per 1, /5 25/6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 3yr average 9yr average All Motorcycles Other Vehicles Average cost of motorcycle claims 4, 35, 3, 25, 2, 15, 1, 5, 24/5 25/6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 3yr average 9yr average All Motorcycles Other Vehicles The table below shows the expected cost of motorcycle claims based on actual claims experience. Description Current total motor vehicle levy Levy if actual claim costs are applied Mopeds $ $33 Motorcycles 6cc or less $329.8 $986 Motorcycles over 6cc+ $429.7 $2,114 These figures exclude the annual Motorcycle Safety levy. Motorcycle levies, 216/17 Levy Consultation ACC of 9

4 Understanding no-fault cover We often receive feedback saying that the way we levy motorcycles is unfair as we are a no-fault scheme. When we refer to no-fault we mean that no matter what you were doing when you were injured whether your actions or the actions of someone else caused the injury you ll be covered by ACC. Our no-fault cover means that, in New Zealand, you can t be sued for causing personal injury, removing the burden of often litigious and exhaustive court processes for everyone. Where possible, we try to levy vehicle owners according to their risk of injury. This is not unique to motorcycles we apply risk rating across all motor vehicles. For example, heavy goods service vehicles (trucks) are charged more than light passenger vehicles (cars) reflecting their higher risk and cost to the Motor Vehicle Account. We also use risk rating in the Work Account where employers are levied on both the risk of injury within their industry and their level of income. For example, based on the higher risk of being injured at work, a professional athlete pays a higher Work levy than an office worker. Why we use engine size to group motorcycles We currently group motorcycles according to engine size. From our claims data we see a strong correlation between these engine size groups and their respective injury costs. This information is available when you pay your rego which means it s easy for us to access, incurring relatively low administration costs. In the table below you can see the relative risk of each motorcycle class compared to an average car. This correlation shows us that, on average, accidents involving more powerful engines are the most severe and the associated costs of treatment and support are significant. Vehicle type 216/17 estimated claim cost relative to cars Average car 1% Mopeds 31% Motorcycles 6cc or less 9% Motorcycles over 6cc+ 1929% In the graphs below you ll see the number and average lifetime costs of motorcycle claims by group. Claim numbers and severities increase with engine power. The average claim costs for higher engine motorcycles have been reasonably steady over time. Number of motorcycle claims per 1, by group /5 25/6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 3yr average 9yr average Mopeds up to 6cc > 6cc Motorcycle levies, 216/17 Levy Consultation ACC of 9

5 Average cost per motorcycle claim 6, 5, 4, 3, 2, 1, 24/5 25/6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 3yr average 9yr average Mopeds up to 6cc > 6cc We often receive feedback saying that we should use other methods to calculate levies such as power-to-weight ratio and safety features. Due to the large costs associated with implementing the new systems to collect this information and the degree of ambiguity around removable safety features, we ve had limited success exploring these options. However, the motorcycle fleet has changed considerably since we first considered these options. We want to revisit these conversations as well as understand any other ideas you might have. To kick the conversation off, we ve included a case study below, showing what it might look like if we levied across more motorcycle engine size groups. You can read more about this under the Shape your motorcycle levies heading below. Our proposed motorcycle levies When calculating our proposed moped and motorcycle levies we re also taking into account our proposed petrol levy reduction. From 1 July 216 we propose to reduce the petrol levy from 6.9 cents per litre to 5.7 per litre. The petrol levy partially reflects an individual s exposure to the risk of being involved in a road crash because fuel consumption relates to distance travelled on the road. For petrol driven motorcycles, for the 216/17 levy year, we propose to maintain the ACC portion of the levy paid through the rego. This will help us collect enough money (without asking other vehicle owners to pay more) to cover the costs of injuries to motorcyclists between 1 July 216 and 3 June 217. The combination of petrol and rego levies results in a small decrease compared to the current levy rates. For non-petrol driven motorcycles, for the 216/17 levy year, we propose to slightly decrease the ACC portion of the levy paid through the rego. Given our proposed reduction to the petrol levy, owners of non-petrol driven motorcycles will pay, on average, the same total levy as petrol driven mopeds and motorcycles. Motorcycle levies, 216/17 Levy Consultation ACC of 9

6 You can see our proposed rates in the table below: Vehicle type Petrol driven vehicles Current licence rate (with petrol levy at 6.9 cents per litre) Proposed licence levy rate (with petrol levy at proposed 5.7 cents per litre) % change Mopeds $99.33 $99.33 No change Motorcycles 6cc or less $ $ No change Motorcycles over 6cc+ $ $ No change Non-petrol driven vehicles Mopeds $ $ % Motorcycles 6cc or less $329.8 $ % Motorcycles over 6cc+ $429.7 $ % These figures exclude the annual Motorcycle Safety levy. The Motorcycle Safety levy In 21/11 the Motorcycle Safety levy was introduced. The Government established the Motorcycle Safety levy and the Motorcycle Safety Advisory to fund road safety initiatives specifically for motorcycle and moped riders. The 215/16 Motorcycle Safety levy is $3 per motorcycle. For the 216/17 levy year, the Minister for ACC, Hon. Nikki Kaye, has asked us to consult on her behalf to reduce the Motorcycle Safety levy from $3 to $25 per motorcycle. You can find out more in the Motorcycle Safety levy proposal document. Shape your motorcycle levies We know that motorcyclists are passionate about safety and we receive a lot of feedback about how our levies could better reflect this. We want your thoughts and ideas about how we could spread the cost more fairly across motorcyclists by using other levy and grouping methods. We want to hear how we could implement your ideas and what you think the effect will be for motorcyclists. To kick the conversation off, we ve included a case study below, showing what it might look like if we levied across more motorcycle engine size groups. This is not a formal proposal, but we d like to know what you think. We d also like to hear your ideas about other ways of spreading the costs more fairly across motorcyclists (and other vehicle owners) to further incentivise safety for everyone. Spreading the cost of injury more fairly across motorcyclists Over the past few years we ve received lots of feedback about the way we group motorcycles. Many people think that grouping motorcycles into large, medium and small engine sizes is not a fair way to levy. We ve done some research into what it would look like if we spread the risk more fairly across motorcycles by creating more engine size groups. We d like to know what you think about our current grouping method and whether you would like us to investigate using more groups. By creating more engine size groups, motorcycles would be more fairly levied. We would use more specific claims data, replacing the three groups we currently use: mopeds, 6cc or less, and over 6cc. It would also mean that some motorcyclists would pay more and others less, depending on the relevant claims data. Motorcycle levies, 216/17 Levy Consultation ACC of 9

7 How we could do this For this example, we could consider splitting motorcycles into six claim categories, similar to the way the Ministry of Transport groups its motorcycle data. These groups are: up to 6cc cc cc 251-6cc 61-1cc 11+cc. For each engine group we looked at our claims data to see how this might affect those levies. The factors we took into account when calculating those levies included: frequency of claims severity and cost of injuries. We then calculated the cost per motorcycle. This meant we could see if there were obvious differences in risks hidden within the current groupings. Looking at the claims data over six engine size groups, we can see different trends emerging. To see if motorcycles with particular cc ratings are over or underrepresented in the claims data, we compared claim numbers per grouping with the number of motorcycles in the group, according to fleet data from the Ministry of Transport. Number of motorcycle claims for six groups /5 25/6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 3yr average 9yr average up to 6cc cc cc 251-6cc 61-1cc 11+ cc We also looked at the average cost per claim for the different groups to see if there was a difference in the severity of claims for each engine size. Motorcycle levies, 216/17 Levy Consultation ACC of 9

8 Average cost per motorcycle claim for six groups 7, 6, 5, 4, 3, 2, 1, 24/5 25/6 26/7 27/8 28/9 29/1 21/11 211/12 212/13 3yr average 9yr average up to 6cc cc cc 251-6cc 61-1cc 11+ cc What we found Based on this data we have found the following key trends: There s been a large increase in the number of vehicles in the up to 6cc category (generally mopeds) and a decline in the number of motorcycles in the 251-6cc grouping. The frequency of claims is not directly correlated with engine size higher engine size does not necessarily mean more claims. However, the severity of claim is directly linked to engine size motorcycles with the largest engine size are involved in the most severe accidents. Severity of accidents is the biggest factor for motorcycle levies. The motorcycle claims data is quite volatile; in particular, it shows very little consistency across the smaller groups (meaning the numbers could rise or fall significantly from year to year). This means the levies would also be likely to increase or decrease according to the same pattern. For example, if injuries for a particular group increased in one year, the levies for this group would also significantly increase. However, we could try to smooth the volatility by decreasing the levy differentiation. The following graph shows how we could redistribute and average out the estimated levy of each group using data from over the past nine years. Here you can see that splitting motorcycles into six claim categories would align more closely to each group s claims cost. However, motorcyclists would still be paying less than the true cost of their injuries. Motorcycle levies, 216/17 Levy Consultation ACC of 9

9 Estimated motorcycle levies for six groups up to 6cc cc cc 251-6cc 61-1cc 11+ cc Current Licence Fee Re-distributed Licence Fee We d like to know what you think about our current grouping method and whether you would like us to investigate using more groups. Motorcycle levies, 216/17 Levy Consultation ACC of 9