Premium regulation in privatised accident compensation schemes Bevan Damm Andrew Doughman Peter McCarthy

Transcription

1 Premium regulation in privatised accident compensation schemes Bevan Damm Andrew Doughman Peter McCarthy This presentation has been prepared for the Actuaries Institute 2012 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

2 What makes this unique? Compulsory Motor vehicle owners Employers In a private scheme, typically: Compulsory for insurer to quote and accept Non compulsory: insurer of last resort These aspects drive premium system design

3 Why premium regulation? NSW WC Benefit reform power to admit other insurers SA CTP Scheme restructure (3 rd /1 st party options) Affordability,, fairness NSW CTP CTP Pricing Strategy market design; premium system QLD WC Report on the operation of the scheme Received submissions on premium process Comcare performance of the scheme financial framework of the scheme

4 Historical aspects The dilemmas faced in history Meredith report, 1913 Ontario workers compensation Agreed principles Injury/disease should be compensated Industry should pay for its own [costs] Differences in opinion as to detail

5 Common concerns (from 1913!) Paid vs incurred Long time to a stable liability/premium Intergenerational cross-subsidy Fear of political intervention (in premium rates) Upset equitable system i.e. flat rate reductions in a risk based system Contributory negligence Proportioning, moral hazard

6 Principles (from 1913!) Removal of Common Law when alternate & adequate compensation exists Time limits for benefits given disability durations Discussion of employers and government contributing to administration expenses Defraying of other social costs Adds to the productive economy

7 Tariff Community rates cross subsidies Industry rates Class rates granularity Experience Common outcomes Experience rating, allowable rating factors Cap/Floor Bonus/Malus Periods, Retro Volume Size Exposure by wages, employees, premium Self insurance & specialised Industries Large Employers - reinsurance Fleets Government

8 Spectrum Centralised Mixed Open Public monopoly QLD WC VIC CTP WA CTP TAS CTP NT CTP Comcare Private monopoly NSW Coal Services ACT CTP Self-insurers Specialised insurers Outsourced VIC WC NSW WC SA WC SA CTP More regulated QLD CTP Less regulated NSW CTP TAS WC Least regulated WA WC ACT WC NT WC

9 Premium settings More regulated Class rated then risk rated by cap/floor Writing at ceiling limited competition File & write Distribution is key Less regulated Class/Geo rated then risk rated by bonus/malus Writing at both bonus & malus better competition File & write regulatory oversight Distribution important Least regulated ANZSIC based recommended rates Any discount/limited loadings 75% Full competition

10 Key characteristics that influence premium design Nature of scheme Beneficiaries vs funders Nature of risks High volume, low volume Data availability and quality Scarcity, new data, exposure Incentives OHS, moral hazard, penalties for negligence

11 WC Options Centrally set premiums Tariff rates Cross subsidisation Risk pooling File & write Cap/floor allowances Poor experience protection Experience Granularity of risks ANZSIC codes, hierarchical, scarcity

12 CTP Options Centrally set premiums Community rating, Cross subsidies, Risk pooling Cap/floor allowances Limitation of risk factors File & write Granularity of risks Geographic, vehicle types/use, history, age Insurer of last resort

13 Common issues Role of the regulator Application of relevant levies Regulator costs Nominal insurers Premium setting methods Cross subsidies Granularity of premiums Competition incentives Market behaviour of insurers

14 Risk pooling Premium system drives design options Equalising/compensating systems Insurer 1 Insurer 1 Insurer 2 Insurer 2 Insurer n Insurer of last resort

15 Key challenges Claimants Funders Stakeholders Providers Insurers (take on risk) All others (no risk) Mindsets of insurers and regulators Insurers protecting existing business models that work Benefit system resulting in stable premiums Equity and affordability

16 Existing scheme premium improvements Insurers potential for profit as incentive to invest New features bring both good and bad elements More granularity in pricing versus instability Fully risk rate versus under insurance Risk pooling versus innovation With every benefit comes an issue

17 Summary Affordability and fairness should be overarching Multiple approaches can work Requires strong design and management to compensate for other inadequacies i.e. competing objectives Flavour of schemes can be cultural / politically affected Overseas schemes are a mix of types and effectiveness Choose a system that best suits society s values

18 Bevan Damm Andrew Doughman Peter McCarthy