Insights. Motor Injury. Motor Injury Insights brings you all the news from the world of motor accident compensation. April 2018.

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1 April 2018 Motor Injury Insights Motor Injury Insights brings you all the news from the world of motor accident compensation. In this edition: The Citizens Jury has selected a new CTP scheme for the ACT We compare trends in claim frequency over the last five years Our regular round-up of motor injury news from around Australia. finity.com.au

2 New scheme in the ACT the citizens have spoken! A jury of ACT citizens has selected a new CTP scheme design which will: Provide defined benefits for all people injured in car accidents, including at-fault drivers Allow seriously injured claimants whose injuries were caused by someone else s negligence to access higher benefits via common law. This contrasts with the current scheme, which provides only $5,000 in medical payments to at-fault drivers. Currently all other benefits can be accessed only via common law. A deliberative democracy experiment The Selected Model Benefit Type Medical costs Defined Benefits (available to all) Up to 5 years Care costs Paid care only for up to 5 years Income replacement Quality of Life (aka NEL, general damages) Death benefit Up to 5 years 95% for 3 months, 80% thereafter Maximum $350k Based on WPI, with a threshold of 5% Funeral cost + up to $350k if dependants Common Law (where negligence is established) Limited to 5 years if WPI < 10% Paid care only limited to 5 years if WPI < 10% No gratuitous care Limited to 5 years if WPI < 10% Maximum $500k Based on WPI, with a threshold of 10% Funeral cost + common law for dependants In 2017 the ACT Government began a deliberative democracy process to consider the design of the ACT s CTP scheme. A Citizens Jury of 50 people, chosen to be a representative group of Canberrans, was established to consider ways to improve the CTP scheme to best meet the needs of all road users without increasing premiums. The jury was aided by a Stakeholders Reference Group which included insurers, lawyers and other advisers. Geoff Atkins of Finity was appointed to assist the jury as scheme design expert. Public feedback was also received. In summary, the process was: In October 2017, the jury set out its objectives for the new scheme. During the next five months, four models were developed and costed. Models from A to D had increasing levels of defined benefits and correspondingly greater limitations on common law. Impact on Premiums The average annual premium under Model D was estimated by EY to be between $385 and $465. This represents a saving of 15-30% from the current average ACT CTP premium of $556. The Path from Here Chief Minister Andrew Barr had committed to implementing the jury s selected design before the deliberative democracy process began. This commitment has been restated on several occasions, including after receipt of the report in late March. The ACT Government will now work with stakeholders to draft legislation and present it to the ACT Legislative Assembly. The aim is to have legislation in the parliament during In March 2018, the jury met again to consider the models and selected Model D as best meeting the objectives. On Sunday 25 March, the jury presented its final report to the ACT Government. At all stages of the process, the jury s activities have been transparent, and related materials have been publicly available. You can find them here: Breaking news: Telematics trial On 28 March, the NSW Government announced a telematics trial to assess the appropriateness of different technology solutions, as well as the ability of telematics platforms to improve driver behaviour and to better inform road safety management. The trial, linked to the CTP scheme, will seek to attract 1,000 participants focussing on young drivers in Western Sydney, who represent a high-risk segment. See our website for further insights into how telematics might play a greater role in Australia s CTP schemes. Motor injury insights April

3 Claim Frequency Trends 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 2012/13. FIGURE 1 CLAIM FREQUENCY TRENDS Frequency Index /13 13/14 14/15 15/16 16/17 NSW VIC QLD SA WA TAS NT NZ 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 frequency in NSW has finally stopped increasing; indeed it fell 10% in 16/17. Changes in legal cost regulations and fraud mitigation efforts appear to have reduced the number of legally represented minor injury claims. In contrast, the frequency in QLD has increased, driven by low severity legally represented claims. This may suggest the claim farmers have moved north Frequency movements in 2016/17 in other schemes: VIC SA WA TAS NT NZ Small decrease. The TAC frequency has been remarkably stable in comparison to other jurisdictions! The number of claims lodged has continued to fall, as it has since the 2013 scheme reforms. 80% of the claims lodged in 16/17 related to the 16/17 accident year (the first post-privatisation year). Claim lodgements increased by 11%, with more than half of the increase attributed to claim farming. The rate of fatalities decreased, while the number of serious injuries has plateaued. The number of claims lodged reduced by 6% in 16/17, despite vehicle numbers increasing by 2.6%, leading to a frequency reduction of 8%. The frequency has continued to increase from the post-reform low in 14/15, noting that numbers can be volatile in this smaller scheme. As for the increase in 15/16, this year s increase of 9% was largely due to a rise in new weekly compensation claims. Motor injury insights April

4 Funding Ratios Figure 2 shows a three year history of the funding ratios for the Government monopoly schemes in Australia and NZ, including the lifetime schemes. For consistency between schemes, the funding ratio is total assets divided by the total liabilities 1. FIGURE 2 FUNDING RATIO OF MONOPOLY MOTOR INJURY SCHEMES 180% 160% Jun-15 Jun-16 Jun % Funding Ratio 120% 100% 80% 60% 40% 20% 0% TAC (Vic) MAIB (Tas) MAC (NT) MAC (SA) LSS (SA) TPIF (WA) MVCIF (WA) LTCS (NSW) ACC MV (NZ) The general trend is improvement in the funding positions. The TAC s funding ratio has improved by eight points, assisted by higher than expected investment returns. $109 million was paid to the Government (capital repayment and a dividend), and the TAC reported a positive net asset position for the first time in many years. For MAC NT, an underlying profit of $34 million (three times the budgeted figure) helped increase the funding ratio by 17 points to 133%. MAC (SA) s ratio reduced 8 points to 129%. During the year, MAC paid $688 million to the Government s Highway Fund. Without this payment, the funding ratio would have been 185%. In WA: The TPIF (fault-based CTP cover) paid a dividend of $117 million to the Government and its funding ratio increased marginally to 142%, above the long term target of 135%. Without the dividend, the funding ratio would have been 146%. The MVCIF, which covers the catastrophically injured where fault cannot be attributed to another driver, had a funding ratio of 111% after its first year. This is after a transfer-in of $96 million from the Insurance Commission General Fund, which offset the cost of the decision not to charge motorists ahead of the new scheme s commencement on 1 July There are some definitional differences from the funding ratios quoted by the schemes. Motor injury insights April

5 Brain Injuries: Refinements to CANS Level 4 The Care and Needs Scale (CANS)2 measures the support needs of adolescents and adults with traumatic brain injuries. The framework has eight levels, ranging from: Level 0: independent in the community with no assistance required, to Level 7: cannot be left alone, requires care 24/7. CANS is used by a number of the lifetime care schemes in Australia to understand their participants support needs. A large proportion of participants are classified within CANS Level 4, which spans a broad range of support needs people who require daily care of between 1 and 11 hours. Consequently, members of this group can have significantly different care needs from one another. Following a retrospective psychometric study, Level 4 has been split into three sub-divisions. These are shown, together with their corresponding Needs Checklist group, in Table 1. TABLE 1 CANS LEVEL 4 NEW SUB-DIVISIONS CANS Level Needs Checklist 4.1 C Needs assistance accessing the community 4.2 B Additional assistance with some activities of daily living 4.3 A Additional assistance with most activities of daily living Group Broad Description This more detailed scale will help schemes better identify participants with similar support needs. The authors have also made minor revisions to the Score Form, but the general approach to administering the CANS has not materially changed. Latest whiplash reforms in UK Motor As reported in our April 2017 edition, the UK Government has been attempting to reform the motor insurance market, which has suffered due to claim farming and very high numbers of minor injury claims for over 15 years. The Ministry of Justice reported that in 16/17 the number of road traffic personal injury claims was around 50% higher than in 06/07, even as reported accidents fell and vehicle safety improved. The Civil Liability Bill, the latest proposed reform, was introduced into the House of Lords on 20 March 2018: Key Aims To reduce the number and cost of compensation claims for whiplash injuries. To reform the setting of the discount rate in personal injury claims (unwinding the 2017 reduction in the discount rate to -0.75% p.a. which led to higher payouts and premiums). Impact The UK Government estimates the full reform package will have only a modest impact, reducing premiums by 35 on average. According to the Association of British Insurers, average motor premiums have risen for eight consecutive quarters, reaching a record 493 at the end of Timing The Government is now targeting an implementation date of April 2019, six months later than its earlier target of October Tate, R.L. (2017). Manual for the Care and Needs Scale (CANS). Unpublished manuscript. John Walsh Centre for Rehabilitation Research, University of Sydney. Updated version 2. Motor injury insights April

6 A new insurance accounting standard AASB 17 is the new insurance accounting standard that will come into effect from 1 January Schemes that currently account for liabilities under the existing insurance accounting standard (AASB 1023) will need to make some changes in their accounts (especially around terminology and presentation), but we expect the outstanding claims liabilities to be broadly similar. Schemes that currently account for their liabilities using AASB 137 (the contingencies standard) may see significantly greater change. The AASB released a discussion paper that proposes insurance like schemes would be required to adopt AASB 17, even if there is no contract of insurance. Which schemes are insurance like? The discussion paper sets out a number of criteria to determine whether a scheme is insurance like, and should therefore apply AASB 17. Schemes expected to be classified as insurance like include: Public sector CTP and workers compensation schemes Lifetime care schemes for the catastrophically injured The NDIS What will change under AASB 17? Liability for Incurred Claims (currently Outstanding Claims) For schemes currently using AASB 137: Claims liabilities will be discounted at a risk free rate Claims liabilities will include a risk adjustment (risk margin) The discussion paper suggests that the risk adjustment for a public sector scheme could be lower than for an equivalent private sector scheme due to implicit or explicit Government support, or monopoly or quasi-monopoly status but is unlikely to be nil. Liability for Remaining Coverage (currently Unearned Premium) Under AASB 17, there are two methods for estimating the liability for remaining coverage: the simpler Premium Allocation Approach (PAA, similar to unearned premium), and the more complex Building Blocks Approach (BBA, like APRA s premium liability). The PAA can be used when the coverage period (or contract boundary in AASB 17 terms) is less than one year. For public sector schemes not funded by premiums (e.g. funded by levies), the contract boundary will be based on when/how the funding stream can be changed: If funding is reviewed annually, or can be changed at any time without the need for legislation, the contract boundary is presumed to be 12 months and the PAA can be used. If funding amounts are enshrined in legislation, the contract boundary is more than 12 months and the BBA must be used. Click here for our more detailed d finitive on AASB 17. Motor injury insights April

7 Jurisdiction Roundup New South Wales Early days for new scheme The Motor Accident Injuries Act (MAIA) came into effect on 1 December 2017, applying to all motor accidents occurring from that date. It is a move away from a predominantly fault-based scheme to a hybrid model which combines access to statutory benefits, regardless of fault, and limited access to common law damages. See our October 2017 edition for further details. While it s very early days, anecdotally the new scheme has seen: Lower claim notifications than expected A different injury profile from the previous scheme, with a higher proportion of more severe injuries. New Claims Operating Models The new scheme requires more claims decisions early in the life of claims, requiring closer and earlier interactions between insurers and claimants. These include: Early payments for income loss Early recovery plans for those who have not returned to pre-injury activities Determining whether an injury is a minor injury within three months of lodgement a critical decision, as those with minor injuries have no access to statutory benefits beyond six months post-accident, or to common law. It remains to be seen how well the new operating models developed by insurers will cope with these increased demands. Lower premiums under the new scheme Figure 3 shows the insurers premium rates for model drivers, ranked from most expensive to cheapest, at October 2017 and April FIGURE 3 NSW CLASS 1 METRO PREMIUMS Policies Incepting 1 OCTOBER 2017 Policies Incepting 15 APRIL 2018 Change Licence Premium Licence Premium CIC-Allianz $663 Allianz $478 ($133) Decreasing price Allianz $611 AAMI $475 ($120) NRMA $597 GIO $475 ($115) AAMI $595 QBE $470 ($118) GIO $590 NRMA $468 ($129) QBE $587 CIC-Allianz $467 ($196) With the commencement of the new scheme on 1 December 2017: Premiums have fallen by over 20% on average The spread of premiums has contracted from $76 at October 2017 to just $11 at April 2018 Allianz now has the most expensive best price, and CIC-Allianz the lowest, in each case by a small margin. CTP Refunds! The NSW Government is partially refunding premiums to vehicle owners to the extent that their policies, purchased at pre-reform prices, covered exposure after 1 December Refunds will vary between $10 and $120. Motorcycle owners will not receive a refund; their premiums did not reduce due to the high cost of adding the at-fault rider cover. Motor injury insights April 2018

8 Market Share Figure 4 updates our analysis of NSW market shares. FIGURE 4 NSW MARKET SHARES 40% 35% Proportion of Premium 30% 25% 20% 15% 10% 5% 0% NRMA AAMI+GIO QBE Alz+CIC Zurich The Suncorp and Allianz brands continued to increase market share during 2017, with NRMA declining. It will be interesting to see what changes in the next 12 months, now that NRMA has one of the lowest best prices and there is less price differentiation between insurers (see Figure 3). The limits of Contributory Negligence A recent NSW CTP case raises questions about the level of benefits which may be awarded to individuals who have contributed to their own injury. Two friends in their 20s (A and B) were drinking in the pub one afternoon. They continued into the night at A s place, consuming a bottle of vodka and a carton of beer between them. They stayed up all night, and their activities included: Fishing Chasing kangaroos and yahooing Riding trail bikes. The trail bike ride started at 5:15am. Both bikes were unregistered, uninsured and had no headlights. A was wearing a helmet but B was not. At one stage, they were travelling towards each other from opposite ends of the street outside A s house. B crossed the centre of the road and they had a near head-on collision. A was seriously injured. B was found to be at more than three times the legal alcohol blood limit. Did A have a valid CTP claim? Yes, against the Nominal Defendant as both vehicles were unregistered. A s contributory negligence was assessed at 30%, but his damages were still over $1 million. The decision was upheld on appeal 3. We ask: is there a case for some further exclusions or limitations on entitlements, where alcohol consumption is a factor? 3 The Nominal Defendant v Buck Cooper [2017] NSWCA 280 Motor injury insights April

9 Queensland Small increase in the ceiling price MAIC increased the ceiling price effective 1 January 2018, from $352 to $355; all insurers have filed at the ceiling. Allianz continues to grow in QLD Allianz gained market share in the year, mostly at Suncorp s expense. FIGURE 5 QLD MARKET SHARES 55% 50% 14/15 15/16 16/17 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Suncorp Allianz RACQ QBE Motor injury insights April

10 ACT Small premium changes for Suncorp brands Figure 6 shows the premiums charged for Class 1 passenger vehicles, ranked from most expensive to cheapest, at October 2017 and February FIGURE 6 ACT PREMIUMS: PRIVATE USE PASSENGER VEHICLE Decreasing price Policies Incepting 1 OCTOBER 2017 Policies Incepting 1 FEBRUARY 2018 Licence Premium Licence Premium APIA $565 APIA $566 $1 AAMI $548 AAMI $549 $1 NRMA $546 NRMA $546 - GIO $545 GIO $542 ($3) Change Two new vehicle classes 1. 25B: Personal Share Vehicle Created parallel to 25A Rideshare Vehicle. The new class accommodates neighbourhood peer-to-peer services (e.g. Car Next Door) : Light Rail Vehicle The ACT s light rail system is expected to commence later in GIO s premium reduced by $3, effective 1 February It is now $4 below NRMA. Suncorp covers 44% of the market Figure 7 shows market shares published by ACT Treasury (based on premiums collected). GIO remained the cheapest in the market and its market share has continued to increase. The Suncorp brands now cover 44% of the market. FIGURE 7 - ACT MARKET SHARES 100% 90% 80% 70% 60% 50% 40% 30% GIO APIA AAMI NRMA 20% 10% 0% Prior 2013/ / / /17 Motor injury insights April

11 Other Jurisdictions SA: The transition to a competitive scheme continues SA The SA scheme is currently in a three-year transition phase, during which premiums will increase by 3% per annum. From 1 July 2019, approved insurers will be able to compete on price and other value-added goods and services. The CTP Insurance Regulator is currently developing the rules governing the competitive scheme, together with the mechanism for purchasing CTP insurance, the basis of premium setting, and the method of premium regulation. WA: ICWA funds research to improve independence WA The Insurance Commission of WA (ICWA) will provide $168,000 to trial assistive toileting technology options for people with acquired brain and spinal cord injuries. ICWA spent $462 million in 2017 on toileting care and support for clients catastrophically injured in car accidents. The project aims to increase clients independence by reducing the amount of care required for toileting, thereby reducing care costs. VIC: TAC removes the medical excess VIC People injured in transport accidents from 14 February 2018 will no longer have to pay the first $651 of their medical expenses. TAC research showed that the medical excess had long been confusing for injured people, leading to delays in treatment and ultimately delaying recovery. Motor injury insights April

12 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. 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 or at rebecca.dalleywater@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 2018 Finity Consulting Pty Limited. AUSTRALIA Sydney Level 7, 68 Harrington Street The Rocks NSW Melbourne Level 3, 30 Collins Street Melbourne VIC 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 Winner (Aus & NZ) Six time Winner ANZIIF Service Provider of the Year ANZIIF Hall of Fame Contact the author Kane Boulton kane.boulton@finity.com.au Sydney Office Raj Kanhai raj.kanhai@finity.com.au Sydney Office Motor injury insights April