International comparison of compensation scheme benefits on motor accident injuries. Kitty Ho

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2 International comparison of compensation scheme benefits on motor accident injuries Kitty Ho

3 Europe with focus on Spain, Italy and UK China Malaysia South Africa

4 How much compensation would the claimant get? 27 years old Salary: AUD 45,000 p.a. Diagnosis: C4 Tetraplegia Care: 16 hours a day

5 Claimant: 27 years old Salary: AUD 45,000 p.a. Diagnosis: C4 Tetraplegia Care: 16 hours a day Claim cost (AUD million) United Kingdom Switzerland Germany France Australia Austria Italy Spain Czech Republic China Malaysia South Africa

6 Cost Drivers in Bodily Injury Claims Care Costs Pain & Suffering Loss of income Medical cost Legal costs Other 20% 13% 3% 7% 57% 5% 5% 10% 19% 5% 17% 14% 7% 25% 15% 8% 10% 5% 34% 50% 53% 68% 8% 23% 19% UK Germany France Italy Czech Republic 10% 20% 4% 40% 26% South Africa

7 Periodic payments vs Lump Sum Mainly periodic payments France United Kingdom Italy Switzerland Spain Mainly lump sums Germany Czech Republic Austria Australia Malaysia South Africa China

8 China Beijing Privately underwritten CHINA Compensation table E.g. impairment lump sum is calculated by formula based on age, disability %, rural/urban, average earnings Very short tail claims settled within 6 months

9 South Africa Publicly underwritten Common law Fund in deficit Pretoria SOUTH AFRICA High inflation (average of 7% p.a. in past 10 years) Rising costs in all Heads of Damage httpswww.drivesouthafrica.co.zaimagesuploadsslow_down_its_cape_town_sign.jp g

10 MALAYSIA Kuala Lumpur Malaysia Privately underwritten Kuala_Lumpur_City_Centre_%28from_Lorong_Kuda%2C_with_car s%29%2c_kuala_lumpur.jpg/448px- Kuala_Lumpur_City_Centre_%28from_Lorong_Kuda%2C_with_car s%29%2c_kuala_lumpur.jpg Common law Lawyers encourage claimants to pursue awards under no win, no fee basis Inflation on care costs, medical and prosthetic limbs Retirement age increase from 55 to 60 Very high loss ratios in excess of 200%

11 Italy ITALY Rome In 2007, Knock-for-knock system for material damages and non-severe bodily injuries (up to 9% permanent invalidity) For severe injuries, the tables published by Milan Regional Court in 2011 are considered to be the guideline for BI compensation. Compensation increases proportionally to the degree of invalidity. Also takes into account psychological impact. Though the judge has discretion to adjust the compensation.

12 SPAIN Spain Madrid With effect from 2016, the Baremo system had a reform. Distinguishes between general and special damages. It is estimated the compensation will increase by as much as 50% for death claims and 35% for other injuries. The Spanish Institute of Actuaries has indicated around a total increase of 16%. Give rise to initial uncertainty, will bring greater certainty in the run. Before Loss of Earnings calculated according to the sum awarded for general damages Now Special damages and Loss of Earnings are separate and independent heads of damage Potential Moral damages may increase e.g. specific damages for spouses, enhanced protection for minors, reference to actual loss of earnings, etc

13 Claimant: 27 years old Salary: AUD 45,000 p.a. Diagnosis: C4 Tetraplegia Care: 16 hours a day Claim cost (AUD million) = Baremo effect United Kingdom Switzerland Germany France Australia Austria Italy Spain Czech Republic China Malaysia South Africa

14 United Kingdom Issue Increase in propensity to claim for whiplash Fraudulent and exaggerated claims (ABI suggested 1 in 9 whiplashes are fraudulent or exaggerated) Impact UNITED KINGDOM London ABI estimated almost 1,500 cases a day, costing insurers nearly GBP 2bn a year and representing 70% of motor claims Working with vehicle manufacturers to prevent whiplash occurring in the first place such as safer seats and headrests and improving braking technologies Government announced a new civil liability bill with these proposals in June 2017: - remove/reduce Paid and Suffering for minor injuries - Raising small claims limit from 1k to 5k so legal costs are not recoverable - Banning of pre-medical offers to settle claims

15 United Kingdom UNITED KINGDOM London Issue Ogden rate changed from 2.5% to -0.75% - Impact

16 UK index-linked gilt yields vs Ogden discount rate

17 Increase of multiplier under new discount rate

18 United Kingdom UNITED KINGDOM London Issue Ogden rate changed from 2.5% to -0.75% - Impact Size of lump sum payments Periodic Payment Orders propensity Estimates of reserve increases on industry level range from GBP 3.5bn to 5 bn.

19 Claimant: 27 years old Salary: AUD 45,000 p.a. Diagnosis: C4 Tetraplegia Care: 16 hours a day = Odgen rate effect Claim cost (AUD million) United Kingdom Switzerland Germany France Australia Austria Italy Spain Czech Republic China Malaysia South Africa

20 General Bodily Injury Claims Trends Growing claims awareness Demographics (longevity, retirement age) Increase of compensation amounts from legislation changes Escalating nursing / care costs High inflation Pressure on discount rates due to low-interest environment

21 Country Discount rate overview Current discount rate (reserving) Set by Germany 0.9% Legal provision Spain 3.5% Baremo fixed by law France 1.04% (Based on government bond indices) No statutory provision, Recommendations published by lawyers and insurers associations Switzerland 3.5% Jurisprudence Netherlands 2.2% Jurisprudence Norway 4.0% Jurisprudence Sweden 1.5% Motor insurance industry arrangement

22 Discount rate overview Country Current discount rate (reserving) Set by Canada Varies from 1.5% to 3% depending on territory Provincial government or courts Australia 5%, but varies by state Jurisprudence/ legal provision Hong Kong United States -0.5% for claimants with needs not exceeding 5 years 1% for claimants with needs not exceeding 10 years 2.5% for claimants with needs not exceeding 5 years A rate between 3% to 4% is currently used by market experts Courts No statutory provision South Africa 8% Jurisprudence

23 Thank you