Insights. Motor Injury

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1 April 2016 Motor Injury Insights Motor Injury Insights brings you all the news from the world of motor accident compensation. You may already be familiar with it under its previous name: CTP News. finity.com.au In this edition: Increasing frequency and costs in NSW reform options being considered SA insurers announced NSW and ACT respond to ride-sharing Challenges posed by mental harm claims

2 Claim Frequency Trends NSW continues to deteriorate Figure 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 2010/11. FIGURE 1 CTP CLAIM FREQUENCY TRENDS Frequency Index NSW VIC QLD SA WA TAS NT NZ 2010/ / / / /15 NSW: Ultimate accident year frequency, claims + ANFs (excl 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 The major stand-out is the dramatic increase in frequency in NSW over the last two years; frequency increased by 7-8% in each year. This has been driven by an increase in frequency of legally represented claims, with many more for those with minor injuries: The number of new low severity legally represented claims has more than doubled in the last two years While increases in these claims had been confined to particular geographic regions, this is no longer the case; all NSW regions experienced significant increases in the last year A small number of plaintiff solicitor firms account for the vast majority of higher claim numbers. Frequency movements in the last year in other schemes are: VIC & QLD SA Unchanged Down 16% due to 2013 scheme reforms and a reduction in the casualty rate. Follows a 20% reduction in 13/14. WA & TAS Reductions of around 5%. NT Down 26%, partly due to scheme reforms on 1 July 2014 that introduced exclusions for some claims. NZ Increase of 4%. Motor Injury Insights April

3 Funding Ratios government dividends drive reductions Figure 2 shows a three-year history of funding ratios for the government monopoly schemes in Australia and NZ. FIGURE 2 FUNDING RATIOS 1 OF MONOPOLY MOTOR INJURY SCHEMES 180% 160% 140% 120% Funding Ratio 100% 80% 60% 40% 20% 0% TAC (VIC) MAIB (TAS) MAC (NT) MAC (SA) LSA (SA) TPIF (WA) LTCS (NSW) ACC MV (NZ) Jun 13 Jun 14 Jun 15 The funding positions for three schemes have reduced in the last year, and these three schemes made payments to their state governments: For MAC (NT), the funding ratio fell 34 points. On 1 January 2015, the Fund returned $140 million of excess capital to the NT Government. Without this, MAC s finding position would have been similar to the previous year. The funding ratio for MAC (SA) is down by 15 points. In December 2014, MAC made a contribution of $853 million (the surplus of net assets over its solvency target) to the State Government Highways Fund. Otherwise, MAC s funding position would have been around 40 points higher, or 25 points higher than the previous year. For MAIB (Tas), the funding ratio fell by four points. During the year, MAIB paid a $100 million special dividend to the Government; without this the funding position would have been nine points higher. The SA lifetime support scheme (the Lifetime Support Authority), which had only been in operation for 12 months, had the highest June 2015 funding ratio at almost 180%. The considerable improvement in the funding position of the ACC s Motor Vehicle Account stands out. The MV Account achieved full funding by June 2014, and this facilitated a 41% reduction in the premium for a standard motor car (see our previous edition). 1 Total assets divided by total liabilities. There are some definitional differences from the funding ratios quoted by the schemes. Motor Injury Insights April

4 Mental Harm Claims The issue of mental harm in motor accident claims arises in two ways: Nervous shock to people not in the accident (usually family members, and often for fatalities) Secondary or consequential mental harm after an accident. For nervous shock claims, legislation usually limits the scope, and a 2015 High Court case from South Australia 2 confirmed the interpretation of one aspect. There are exceptions, however, such as in NSW where part of the claim frequency growth is in claims for children who suffered no physical injuries but now have mental harm complaints. Secondary mental harm can have material impacts on claims costs. Where there is a common law threshold (such as in Victoria or NSW), the mental harm component is often the focus of threshold arguments. Regardless of thresholds, secondary mental harm can also: Lengthen loss of earnings periods Increase future care damages (including medicals) Reversal in Victoria In 2013, the TAC legislation in Victoria was changed to make it tougher to bring a common law claim for mental harm. The definition of what constituted a serious injury was changed to require claimants to have severe long-term mental or severe long-term behavioural disturbance... for a continuous period of at least three years with symptoms causing clinically significant distress and severe impairment The Andrews government had an election commitment to repeal this change and legislation has now passed the lower house to do so, retrospectively. Increase general damages amounts. The difficulties in assessing impairment consequent on psychological injuries can be found in cases such as: Allianz Australia Insurance Ltd v Rutland [2015] NSWCA 328 Peet v NRMA Insurance Ltd [2015] NSWSC 558 Mason v Transport Accident Commission Mental harm is particularly difficult for an insurer to deal with because it is so heavily dependent on self-reporting of subjective symptoms. Once a person has seen their psychologist and obtained expert reports, an insurer examination cannot prove anything else other than by challenging credit. Mental harm may also be claimed fraudulently (or exaggerated) if a claimant or advisers are sufficiently unscrupulous. There are currently no easy solutions. The pointy end of the problem is in workers compensation, with stress and bullying claims, and in group disability insurance but any approaches developed in these spheres will probably not be directly applicable to motor accidents. Legislative change is unlikely in the short term, so the focus needs to be on application of guidelines and protocols. 2 King v Philcox [2015] HCA 19. Motor Injury Insights April

5 Jurisdiction Roundup NSW Which road leads to a better CTP scheme? On 11 March, the Minister for Innovation and Better Regulation announced a major review of the NSW CTP scheme. With only 45 cents in every green slip dollar going to injured road users, the Minister said the scheme had become inefficient and unsustainable. The review will focus on the following four key objectives: Increasing the proportion of benefits provided to the most seriously injured road users Reducing the time it takes to resolve a claim Reducing opportunities for claims fraud and exaggeration (see our comments on claim frequency on page 2) Reducing CTP premiums. To facilitate the consultation process, the Government published a paper which outlined four options for the Scheme 3, as summarised in Table 1. TABLE 1 POTENTIAL REFORM OPTIONS Option 1 Option 2 Option 3 Option 4 Retain the current common law, fault-based scheme with process improvements Move to a hybrid no-fault, defined benefits scheme Move to a fully nofault, defined benefit scheme with caps and thresholds No benefit changes Adjustments to benefit levels Common law benefits retained in parallel No access to common law The Government also released an independent review of insurer profits (from October 2015) which made recommendations regarding premiums, risk rating and the level of competition. Both documents are available on SIRA s website. Public consultation on the reform options closed on 22 April and the Government plans to announce its response in the second half of The LTCS scheme is outside the scope of the review. Motor Injury Insights April

6 In December 2015, Zurich announced that it would not issue new CTP policies after 29 February Customers whose policies expired before 1 March 2016 had the option to renew. Customers with later expiry dates need to switch to another insurer. Premium increases for all insurers Figure 3 shows the insurers premium rates for model drivers, ranked from most expensive to cheapest, at both August 2015 and May FIGURE 3 NSW CLASS 1 METRO PREMIUMS 2 AUGUST MAY 2016 Licence Premium Licence Premium Change Zurich $603 CIC-Allianz $568 X CIC-Allianz $644 +$76 Decreasing price Allianz $561 NRMA $544 QBE $519 Allianz $604 +$43 NRMA $588 +$43 QBE $587 +$68 GIO $509 AAMI $505 AAMI $572 +$68 GIO $555 +$46 Since August 2015, all insurers have raised their premiums. The premium across all insurers rose by $50 or 9%. With Zurich s exit, CIC Allianz now has the most expensive best price, and the two Suncorp brands GIO and AAMI remain the cheapest. The range of premiums has narrowed slightly from $98 to $89. Motor Injury Insights April

7 Figure 4 updates our analysis of NSW market shares. FIGURE 4 NSW CTP MARKET SHARES 40% 35% Proportion of Premium 30% 25% 20% 15% 10% 5% 0% NRMA AAMI+GIO QBE Alz+CIC Zurich Zurich s market share dropped two points between 2014 and The Suncorp brands, and to a lesser extent QBE and the Allianz brands, have increased market share while NRMA s share has continued to decline. CTP options for point-to-point vehicles The NSW Government has released a discussion paper on CTP for point-to-point vehicles (taxis, hire cars and ride-share services). The rise in ride-sharing has blurred the distinction between private use and business use, and the main aim is to consider the disparity between the rules and prices for different classes of point-to-point vehicles. The Government has presented six options (which it notes are not exhaustive), including the benefits and challenges associated with each option: 1. Create a new vehicle class for ride-sharing vehicles (as the ACT has recently done see page 9), with hire cars and taxis remaining in their current classes. 2. Create a point-to-point vehicle class that will combine taxis, hire cars and ride-share vehicles, and include scope for larger bonus/malus within the class. 3. Deregulate point-to-point premiums to allow risk rating. 4. Include all point-to-point vehicles with the existing Class Apply an insurance levy on fares to create a risk pool. 6. Retain the current vehicle classes, but free up the risk factors. Public consultation closed on 8 April. The discussion paper can be found here. Motor Injury Insights April

8 Victoria The TAC s Longitudinal Client Outcome Study Over time, the TAC s goals have evolved from a sole focus on financial sustainability, to a broader focus on understanding and measuring client outcomes. The TAC has undertaken a multi-cohort, longitudinal study that tracks the experience and outcomes of clients as they return to health (and work, where relevant) following a transport accident. Clients were interviewed four times over a twoyear period, covering a diverse range of topics, including: Pre- and post-accident health and vocational status Accident circumstances and injury characteristics Psycho-social factors and environmental considerations. Early insights derived from the study include the following: Clients have varying pre-accident health circumstances. While the TAC was already aware that everyone starts their recovery journey from a different point, the study enabled it to systematically explore the impact of pre-accident health on subsequent recovery. Some clients need help when dealing with the TAC, and some seek assistance from solicitors early in the life of a claim. Mental health vulnerability can be identified by responses to two simple questions related to cognition (e.g. I am angry that this has happened to me ) and resilience (e.g. I am finding it difficult to bounce back from the accident ). The longitudinal study has given the TAC greater insight into the drivers of different service and recovery outcomes, and these insights are being used to develop the TAC s next major strategy. Further detail on the study is available from the Actuaries Institute. Queensland Planning for an NIIS Queensland s Communities, Disability Services and Domestic and Family Violence Prevention Committee is currently inquiring into a suitable model for the implementation of the National Injury Insurance Scheme for motor vehicle accidents. The Inquiry s terms of reference include an investigation of the most suitable model for implementing the NIIS with options including: A no-fault lifetime care scheme A hybrid common law and no-fault care and support arrangement. $20 million crash in FNQ In June 2015, a ute crashed into a café in Far North Queensland, triggering a gas explosion which injured 20 people, two of whom later died in hospital. The latest CTP industry data shows 17 large claims arising from the accident, with total estimated costs of around $20 million. All insurers have filed at the ceiling The MAIC ceiling price applying up to 31 March 2016 was $330 and all insurers had adopted that rate. For premiums from 1 April 2016, the MAIC ceiling price increased by $7 (2%) and again all insurers filed at the ceiling. Stop Press Qld NIIS On 19 April, Qld Treasurer Curtis Pitt introduced legislation to implement an affordable NIIS in Qld from 1 July The scheme would operate as a hybrid model incorporating no-fault benefits, while retaining an option for exercising common law rights where fault is involved. Mr Pitt said the NIIS would cost an extra $32 per vehicle. Motor Injury Insights April

9 ACT Lower premiums for the Suncorp brands Figure 5 shows the recent history of premiums charged for Class 1 passenger vehicles in the ACT. All insurers refiled for 1 April 2016; NRMA maintained its premium, while the Suncorp brands all reduced (by $20 for APIA and $10 for AAMI and GIO). GIO is now $15 below NRMA. FIGURE 5 ACT PREMIUMS: PRIVATE USE PASSENGER VEHICLE Class 1 Premium ($) APIA NRMA AAMI GIO Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 A new rating class for Uber! FIGURE 6 ACT RIDE-SHARE PREMIUMS The ACT Government has introduced a new class of premiums for ride-share vehicles, to reflect the higher assessed risk given the vehicles undertake some commercial activity. Figure 6 shows the premiums for the class (effective from 1 April 2016) by insurer, presenting them as a ride-share loading on top of the insurers Class 1 passenger vehicle premiums. NRMA s ride-share premium implies a 10% loading on the Class 1 premium, whereas the Suncorp brands have all adopted a 50% loading. With the introduction of the new ride-share class, the CTP insurers also undertook a review of the premiums for hire cars and taxis. Figure 7 (next page) shows the movements. Premium (No Input Tax Credit) 1, NRMA AAMI APIA GIO Class 1 Ride-share Loading Motor Injury Insights April

10 FIGURE 7 ACT HIRE CAR AND TAXI PREMIUMS BEFORE AND AFTER 1 APRIL ,700 Private Hire Car 10,000 Taxi Premium (No In put Tax Credit) 2,500 2,250 2,000 1,750 1,500 1,250 1, Premium (No In put Tax Credit) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 NRMA AAMI APIA GIO 0 NRMA AAMI APIA GIO Before After Before After The Suncorp premiums for private hire cars have all reduced by more than 50%, to sit about one-third higher than Suncorp s ride-share premiums; the corresponding NRMA reduction was only 14%. Taxi premiums are much higher than those for ride-share vehicles and private hire cars, and again the Suncorp brands reductions were larger than NRMA s. It will be interesting to see what impact these new premiums have on the business written by each brand. South Australia Four CTP Insurers Announced The SA Government announced that the four insurers to provide CTP insurance from 1 July 2016 under a newly privatised scheme will be: $260m market share allocation fee As far as we are aware, this is the first time insurers will make upfront payments to participate in a privatised market. AAMI (Suncorp Group) Allianz QBE SGIC (part of IAG). Each motorist will be allocated to one of these insurers, although details on each insurer s market share and the allocation method have not yet been released. Switching from the allocated CTP insurer will not be actively encouraged during the first three years of the new scheme. In his press release, the Treasurer identified significant contributions to the Government s Highways Fund to improve the safety of SA roads: A $448.5 million dividend will be paid in 2015/16 from the current scheme (MAC) due to strong investment returns and liability releases in the year to 30 June A further $300 million dividend is projected for 2016/17 following privatisation. This amount includes $260 million from the four approved CTP insurers by way of an initial market share allocation fee. For the first three years of the privatised scheme, CTP prices will be adjusted with CPI-like increases. Insurance renewal notices will continue to be issued as part of the vehicle registration process, and there will be no changes to the way premiums are paid. In the fourth year, the CTP market will become fully competitive, with other approved insurers able to enter the market. At that stage, motorists will be able to choose to remain with their allocated insurer or change to another. A new CTP Regulator will be established to ensure fair and affordable CTP insurance and protection for motorists (relevant legislation was passed on 14 April). It is not yet clear what regulation there will be over premiums once the market is fully privatised from 1 July MAC will continue to be responsible for promoting road safety awareness and will continue its role as Nominal Defendant. Motor Injury Insights April

11 Tasmania Country roads, take me home (safely) Table 2 summarises two recent CTP cases from Tasmania involving the use of country roads. TABLE 2 RECENT TASMANIAN CASES OF INTEREST Motor Accidents Insurance Board v Lester [2016] TASSC 2 Facts Issue Held Mr House was catastrophically injured when the car he was driving at night collided with steers wandering on the highway. MAIB commenced an action against the Lesters, the owners of the property from which the cattle had escaped. Another defendant, a rural fencing contractor was later joined to the proceedings. Whether the defendants had a duty of care to Mr House and whether they had breached that duty. The defendants had breached their duty of care and, as a consequence, the cattle escaped from the Lesters property onto the Bass Highway. It was reasonably foreseeable that if the cattle did escape, they would wander onto nearby roads and pose a significant risk to road users. Regarding apportionment, the Court held that even taking into account the fencer s poor workmanship, the owners should bear 65% of the liability because if they had exercised a more robust approach to their duty of care, the accident might have been avoided. There are long established precedents regarding liability with respect to stray animals. Courts take a traditional approach to duty of care and breach, and one would hope that owners of property with livestock have the requisite insurance cover and appropriate risk mitigation in place. Chu v Russell [2016] TASFC 1 Facts Issue Held Mr Russell was riding a bicycle with a group of cyclists on a country road, waiting to turn right. Mr Chu drove up behind, colliding with Mr Russell and causing serious injury. The judge at first instance found that Mr Chu had breached his duty of care but also reduced Mr Russell s damages by 30% for his contributory negligence. On Appeal, the Court addressed the issue of liability with a 2 1 verdict, upholding breach of duty but increasing contributory negligence to 50%. The majority affirmed that in the absence of a specific perceivable danger, a driver does not have a duty to slow down to a speed at which he or she could stop in any conceivable circumstances and thus avoid an accident. However, there were a number of factors that made it necessary for Mr Chu to reduce his speed substantially as he approached the cyclists, and to be aware that he might suddenly have to brake hard to avoid a collision. Mr Chu was driving at km/h (the speed limit was 100km/h), and the majority found that he breached his duty of care as ordinary reasonable drivers slow down when they are approaching cyclists on country roads, and take care when passing them. However, the majority also increased contributory negligence from 30% to 50%. The failure of the cyclist to look before diverging in order to cross the lane when there was a vehicle approaching, and without signalling his intention to do so, was a significant departure from the standard of care required of him. In apportioning the degrees of culpability, the Court found that even though the cyclist alone created the dangerous situation, this factor was cancelled out by the inequality between the car and bicycle in relation to size, weight, speed and manoeuvrability, and by Russell s consequent vulnerability as a cyclist. Interestingly, the dissenting judge found that the accident would not have occurred but for Russell s own negligence, and therefore sheeted liability entirely to him. Motor Injury Insights April

12 The UK Market lessons for Australia? Events in the UK motor insurance market provide salutary lessons for Australia. The UK government and insurance industry have long grappled with a dysfunctional motor insurance claims environment. Despite major premium increases over about a decade now, the industry has failed to turn a profit since In November 2015, British Chancellor George Osborne announced measures to tackle questionable whiplash claims, including removing the right to general damages for minor soft-tissue injuries. Mr Osborne also signalled plans to cut legal costs by transferring personal injury claims of as much as 5,000 to the Small Claims Track (currently only 1,000). The increased threshold will mean that a greater volume of cases will be resolved without legal fees. After some temporary respite in 2013, some insurance companies have already started to raise premiums again to cover the resurgent cost of claims inflation. Given that government and industry have been trying to solve the problems since the late 2000s, the experience demonstrates how hard it is to fix an out-of-control system. The UK motor insurance industry has failed to turn a profit since British insurers have welcomed the changes, which Mr Osborne said could remove 1 billion from their costs by ending the proliferation of questionable claims. The changes, which will not take effect until 2017, are in addition to a host of measures implemented by the Government since 2011 to address insurance fraud and high frictional costs. Contact the author Kane Boulton kane.boulton@finity.com.au Sydney Office Motor Injury Insights April 16 12

13 Finity s Motor Injury Team Finity 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. Finity also 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 Renae Hoskins on or at renae.hoskins@finity.com.au. Actuaries Aaron Cutter aaron.cutter@finity.com.au Estelle Pearson estelle.pearson@finity.com.au Gillian Harrex gillian.harrex@finity.com.au Management Consultants Graeme Adams graeme.adams@finity.com.au Raj Kanhai raj.kanhai@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 2016 Finity Consulting Pty Limited. Like to know more? Please contact one of our motor injury experts if you have any questions or comments about this d finitive, or to learn more about Finity s motor injury offering. Alternatively, read more at finity.com.au. AUSTRALIA Sydney Level 7, 155 George Street The Rocks NSW Melbourne Level 30, 30 Collins Street Melbourne VIC Canberra Level 1, 29 Jardine Street Kingston ACT Adelaide Level 30, Westpac House 91 King William Street Adelaide SA NEW ZEALAND Auckland Level 5, 79 Queen Street Auckland ANZIIF Professional Services Firm of the Year Six times winner Service Provider of the Year, Insurance Industry Awards Hall of Fame Australian Insurance Industry Awards Finity Consulting Pty Ltd ABN finity.com.au