motor injury insights - finity consulting · 2017-04-24 · escalating costs in ctp and motor...

Motor Injury Insights brings you the news

from the world of motor accident compensation.

April 2017

In this edition:

An update on the Magic Pudding that is claim farming – in Australia

and the UK

A brief summary of the proposed scheme reforms in NSW

Our regular round-up of motor injury news from around Australia.finity.com.au

Motor Injury

Insights

| Motor injury insights | April 2017 02

The Magic Pudding1 of Claim FarmingIn 2012, Geoff Atkins wrote about the many problems in UK motor

markets from what has broadly been termed “claim farming”

(that article can be found here). He finished with the question:

Could it happen in Australia?

Well, it’s now clear that it’s happening here in a big way. We fear that

unless concerted action can be taken to cut out farming, it will spread

and become so embedded that we’ll never stop it.

The visible part of claim farming is the cold call to an individual asking about a recent accident. The hidden part

includes the exaggerated CTP claim, the inflated car repair bill, the excessive fees for a rental car – all paid for by

the unknowing policyholder.

Our silos make us vulnerableUnlike the UK, our insurance products for motor vehicle property damage and bodily injury are totally separate.

And the CTP schemes are all state based. The claim farmers don’t care about these distinctions. We are more

vulnerable, and much less able to respond, because of our silos. Participants are spread across public and

private sectors, have no regular communication channels and (in the past) no clear common interest in tackling

a systemic problem.

Did you know?

1 We use the ‘Magic Pudding’ label because – as in the book – it seems like a feast that everybody can enjoy and never runs out.

The Magic Pudding is here!

Escalating costs in CTP and

motor insurance driven by the

intervention of third parties.

The ACCC reported over 2,700 complaints about unsolicited calls in the seven months to November 2016 from just three states (1,700 in NSW, 600 in Qld, 400 in SA). With 2,700 complaints, how many have received a call?

By 2014, two thirds of all British motorists had been contacted by a claims management company, and one in three had received more than ten calls.

The frequency of CTP claims for minor injury in NSW is now 2.5 times the 2011 level, and Qld is seeing an increase in minor claims, while the accident rate is stable – coincidence?

The average cost of a third party property damage claim in motor has been rising quickly, with a significant proportion coming from car hire costs – coincidence? In this context, the main victim of the claim farming exercise is the insurer of the vehicle at-fault. The third party claim presented to them is largely out of their control.

Phone calls seem to come from overseas call centres. Callers frequently misrepresent themselves as being from the regulator, an insurer or law firm, and they appear to have confidential accident details. It remains unclear whether this activity is illegal or not.

http://www.finity.com.au/publication/the-magic-pudding-uk-motor-insurance-anziif-article


What can be done?

It is hard. In the UK, the insurance industry and government have been actively fighting claim farming since

the mid-2000s, with only limited success. The UK government is now consulting on still more law changes

(discussed below).

And who really cares in Australia? For an insurer faced with a dubious claim, it is often cheaper and easier to grit

the teeth and settle it. There is no perceived value in pursuing the individual motorist for fraud. An insurer, whether

government or private, can live with the pain, put up its premiums, and still be fine. The average motorist paying

around $100 a year more because of claim farming is none the wiser and just grumbles about

the insurers.

So do we care enough? Are the many elements of the insurance system willing to leave their silos, put aside

competitive interests and work together? How can we mobilise the scarce resources of regulatory and crime

fighting authorities to tackle the dark side of the motor insurance business? Some government and private

institutions are acutely aware of this emerging issue. Various investigations are underway and actions are being

developed and implemented, but actions are not likely to succeed unless they can influence many parts of the

claim farming networks and ultimately get to the core of the problem.


More Whiplash Reforms in UK MotorThe UK motor insurance market has suffered from claim farming and very high numbers of minor claims

for about 15 years.

For nearly 10 years, the government has taken the issue seriously and implemented a number of changes,

with limited success. On a positive note, for the last three years the number of soft tissue injury claims has

been static at 680,000 claims per year. The latest round of reforms, which began with a consultation paper in

November 2006, is summarised here.

Claims ‘in scope’ of the reforms

Reforms will be targeted at ‘whiplash claims and minor psychological claims’, with definitions not yet

fully settled.

Delay and Compromise

The government proposes that these reforms will operate from 1 October 2018 – an astonishing 18 months away.

It is clear from the consultation and responses that the proposals are a compromise from tougher options that were canvassed. Of the 625 responses to the consultation, 412 were from claimants’ solicitors, claim management companies and credit hire companies.

Area Reform

Damages payments

The government decided not to remove general damages for minor claims (an option canvassed in consultation).

There will be a defined damages payment, depending on ‘injury duration’ – from duration 0 (£225 payment) to 24 months (£3,725).

These amounts are very low compared with recent payments.

Medical assessments

Medical examinations will continue to be the province of accredited medical examiners.

The examination is intended to happen soon after a claim is lodged, with a decision on the ‘injury duration’ based on the prognosis at the time of examination.

Limits on award of legal costs

There is currently a ‘small claims limit’ of £1,000, below which no costs are awarded and each party bears its own legal costs.

This limit will be increased to £5,000.

Whiplash claimsoffers and settlements

There will be a ban on settlement of claims before medical evidence is obtained, including a ban on making or soliciting offers.


0

10

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120

NSW VIC QLD SA WA TAS NT NZ

Freq

uenc

y In

dex

11/12 12/13 13/14 14/15 15/16NSW: ultimate accident year frequency, claims + ANFs (excludes at-fault ANFs)

VIC,NT: 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

Claim Frequency TrendsFigure 1 shows the past five years’ CTP claim frequencies for Australian and NZ jurisdictions. Each jurisdiction’s

frequency is expressed as an index relative to 2011/12.

FIGURE 1 – CLAIM FREQUENCY TRENDS

The claim frequency in NSW remains problematic,

with growth averaging 9% p.a. over the last three

years. This has been driven by an increase in

frequency of legally represented claims, particularly for

minor injuries and concentrated initially in South and

Western Sydney. This is one of the key motivations for

the proposed reforms to the NSW scheme, discussed

later in this edition.

In Queensland, the frequency increased 5% in 2015/16,

and continued to increase in the six months to

December 2016. Like NSW, there has been a surge in

low severity legally represented claims, especially for

claims involving whiplash. This could be due to claim

farming activity. Unlike NSW, the higher claim volumes

don’t appear to be geographically concentrated.

FREQUENCY MOVEMENTS IN 2015/16 IN OTHER SCHEMES ARE:

VIC Small increase

SAThe number of claims lodged has continued to fall, following 2013 scheme reforms. Down 9% in 15/16.

WAClaim lodgements fell by 13%, the largest decrease in 20 years. Allowing for 2% growth in vehicle numbers, the frequency fell by 15%.

TASFrequency dropped to a record low, with 4% fewer claims and 2.6% vehicle growth. However, the fatality rate increased and the number of serious injuries plateaued.

NT The 12% increase appears to be a ‘bounce-back’ after the post-reform low frequency in 14/15.

NZThe entitlement claim frequency is dominated by weekly compensation claims, which increased in 15/16.


Funding RatiosFigure 2 shows a three-year history of the funding ratios for the government monopoly schemes in Australia and NZ, including the lifetime care schemes. For consistency between schemes, the funding ratio is total assets divided by total liabilities2.

FIGURE 2 – FUNDING RATIOS OF MONOPOLY MOTOR INJURY SCHEMES

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

TAC(Vic)

MAIB(Tas)

MAC(NT)

MAC(SA)

LSS(SA)

TPIF(WA)

LTCS(NSW)

ACC MV(NZ)

Fund

ing

Ratio

Jun-14 Jun-15 Jun-16

The funding positions for most schemes reduced

during 2015/16.

• The TAC’s funding ratio reduced seven points

to 92%. During the year, dividends and capital

repayments to the government totalled $210m,

but these accounted for only one point of the

movement. (The TAC uses a different definition

of funding ratio; using that definition, its funding

position was above the target range so a special

dividend was paid.)

• For the TPIF (WA), the Insurance Commission paid a

dividend to the government of $112.5m as a result of

its strong investment performance in 14/15. Without

this dividend, the funding position would have been

similar to June 2015.

• In the second year of SA’s Lifetime Support

Scheme, the funding ratio has fallen – consistent

with expectations. LSS’s net asset position is not

expected to change materially over time, as the

levies do not include a margin above anticipated

claims costs and expenses.

2 There are some definitional differences from the funding ratios quoted by the schemes.


Jurisdiction RoundupNSW

Proposed Reforms – a New CTP Scheme

On 9 March 2017 Minister Dominello brought the Motor Accident Injuries Bill to NSW Parliament; it passed on

30 March. It will be a brand new Act, and there are enough differences to think of it as a new scheme.

The proposed benefit design:

• Extends statutory benefits for loss of earnings, treatment and care to all those injured in accidents

• Narrows common law further to only non-economic loss and future economic loss

• Restricts access to common law to those with a ‘non-minor injury’. The legislation defines minor injury as

a soft tissue or minor psychological injury.

The following table provides a high level comparison of the benefits under the current and proposed schemes.

Insurers will need an internal review function, which will be the first port of call if a claimant is unhappy with a

decision. Dispute resolution then moves to the SIRA Dispute Resolution Service (DRS) with three divisions:

1. Merit review – for most statutory benefit and procedural disputes

2. Medical assessment – similar to current scheme

3. Claims assessment – for common law and liability disputes; also similar to current scheme.

Legal cost regulations have been made tougher, and there will be fewer opportunities to bypass the DRS and

go straight to court. There will be some provision for legal costs in statutory benefit disputes, with details

currently unknown.

SIRA’s powers to regulate premiums have been expanded. There will be a risk equalisation mechanism, which

has already been developed. There will also be a profit normalisation mechanism for at least three years, but no

details are yet known.

The scheme is expected to start from 1 December 2017, with premium changes some time before that.

The government has announced a reduction in the average premium of around $120.

Benefit

Current Proposed Current Proposed Current Proposed

Past loss of earnings Up to $5k in total Up to 6 months Yes Up to 6 months Yes Up to 3 to 5 years

Future economic loss No No Yes No YesYes

(Could include some past top-up)

Non-economic loss No No If > 10% WPI No If > 10% WPI If > 10% WPI

Past treatment Up to $5k in total Up to 6 months Yes Up to 6 months Yes

Future treatment No No Yes No Yes

Past care Up to $5k in total Up to 6 months Yes Up to 6 months Yes

Future care No No Yes No Yes

Gratuitous care (GvK) No No Yes No Yes No

Statutory Benefit

Common LawNo entitlement

Lifetime

Not At-FaultMinor Injury Non-Minor InjuryAt-Fault

Lifetime


Movement in Class 1 Metro Premiums

Figure 3 shows the insurers’ premium rates for ‘model drivers’, ranked from most expensive to cheapest, at

September 2016 and April 2017.

FIGURE 3 – NSW CLASS 1 METRO PREMIUMS

Since September, all insurers except Allianz have raised their premiums. The average premium rose by $19 or

3%. CIC Allianz remains the most expensive ‘best price’ and GIO remains the cheapest, but the ranks of all other

insurers have changed.

Suncorp gains market share in NSW

Figure 4 updates our analysis of NSW market shares.

FIGURE 4 – NSW MARKET SHARES

Zurich’s business has now fully run off. The Suncorp brands’ share increased by four points during 2016, largely

due to strong growth for GIO – which has had the lowest ‘best price’ since May 2016. QBE and the Allianz brands

also increased their shares, and NRMA’s share has continued to decline.

0%

5%

10%

15%

20%

25%

30%

35%

40%

NRMA AAMI+GIO QBE Alz+CIC Zurich

Prop

ortio

n of

Pre

miu

m

2013 2014 2015 2016

SEP 2016 APR 2017

ChangeLicence Premium Licence Premium

CIC-Allianz $662 CIC-Allianz $673 +$11

Allianz $628 NRMA $640 +$29

NRMA $611 Allianz $623 ($5)

QBE $603 AAMI $622 +$30

AAMI $592 QBE $613 +$10

GIO $578 GIO $606 +$28

De

cre

asi

ng

pri

ce


Queensland

Scheme under review

MAIC is reviewing the QLD CTP scheme, looking to improve affordability, efficiency and fairness. Submissions

were received from the four insurers, the Insurance Council, the Australian Lawyers Alliance, the Taxi Council

of QLD, the Recovery Injury Research Centre, and others. Issues raised included community vs risk rating, price

differentiation and the current floor/ceiling structure, affordability, transparency around legal fees, ride-sharing,

and dealing with fraud.

We understand that MAIC will be releasing its findings soon.

NIISQ: 28 Notifications to Dec

Queensland’s National Injury Insurance Scheme (NIISQ) came into effect on 1 July 2016. As at December 2016, the scheme had 19 interim participants and nine notifications. 50% of the participants would not have been covered by the at-fault CTP scheme.

Allianz briefly dropped below the ceiling…

The three smaller insurers are gaining market share

Allianz, RACQ and QBE all increased their market shares slightly during 2015/16, at Suncorp’s expense; see Figure 5.

FIGURE 5 – QLD MARKET SHARES

Date Change All insurers charging ceiling price?

From 1 Oct 16The ceiling price increased by $39 (12%) to $369 with the introduction of NIISQ.

Yes

From 1 Jan 17 Allianz reduced its premium by $5. No

From 1 Apr 17The ceiling price reduced by $16 (4%) to $353. Yes

0%5%

10%15%20%25%30%35%40%45%50%55%

Suncorp Allianz RACQ QBE NRMA

13/14 14/15 15/16


ACT

GIO drops premium by $5

Figure 6 shows the recent history of premiums charged for Class 1 passenger vehicles. GIO refiled effective

1 February 2017; it is now $5 below NRMA.

FIGURE 6 – ACT PREMIUMS: PRIVATE USE PASSENGER VEHICLE

GIO’s market share continues to grow

Figure 7 shows market shares recently published by ACT Treasury (based on premiums collected).

GIO’s premium has been the cheapest in the market since September 2015 (Figure 6), so it is not surprising that its

market share has increased. Suncorp’s brands now cover 40% of the market.

FIGURE 7 – ACT MARKET SHARES

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prior 2013/14 2014/15 2015/16

GIO

APIA

AAMI

NRMA


South Australia

Parliament to review the 2013 changes

The South Australian Parliament’s Social Development

Committee is reviewing the legislation that enacted

the Lifetime Support Scheme and the 2013 reforms to

the CTP scheme. The review’s scope will include:

• The extent to which the LSS is “effective and fair”

for individuals catastrophically injured in motor

vehicle accidents

• Whether the LSS should be extended to people

catastrophically injured in other circumstances

• The impact of threshold tests under various heads

of damage.

Submissions to the committee are due by 27 April 2017.

Aaron Chia leaves MAC

MAC’s CEO, Aaron Chia, left at the end of March to

pursue new opportunities. He has led MAC for three

years, during which the SA CTP scheme was opened

to private insurers. David Mazzone assumes the role

of Acting CEO as MAC begins the transition to a sole

focus on road safety.


Geoff Atkins

+61 2 8252 3337

[email protected]

Sydney Office

Kane Boulton +61 2 8252 3348

[email protected]

Sydney Office

Contact the author

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 TeamFinity’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 Rebecca Dalleywater on +61 2 8252 3458 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 © 2017 Finity Consulting Pty Limited.

2016 ANZIIF Professional Services Firm of the Year (NZ) 2015 ANZIIF Professional Services Firm of the Year (AUS) Six time winner ANZIIF Service Provider of the Year

ANZIIF Hall of Fame

motor injury insights - finity consulting · 2017-04-24 · escalating costs in ctp and motor...

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