October 2017 Motor Injury Insights In this edition: Motor Injury Insights brings you all the news from the world of motor accident compensation. Claim farming and compensation touting complaints Analysis of road fatality statistics NSW s new scheme, due to commence on 1 December finity.com.au Premiums and affordability across Australia and New Zealand.
The claim farmers keep coming! We have previously written about the problem of claim farming the dramatic impact this practice has had on the UK motor market in the past 15 years (see 2012 article), and the fact that claim farming practices have been alive and thriving in Australia for at least the last five years (see April 2017 MII). Claim farming is big business! Call centres, generally based overseas, spend their days making cold calls to encourage people to lodge CTP claims. The calls are sometimes targeted to people who are known to have been in a motor accident (where do they get this information?) and sometimes they are just made at random. People interested in finding out more are generally referred to a legal practice, and there may also be referrals for car repairs and/or car hire at inflated prices. In NSW, as in the UK, evidence suggests this practice has been associated with a sharp rise in claims for minor injuries. Claim farmers are shameless in their approaches to solicitors see the excerpt from a recent marketing email sent to a NSW legal firm. We note that, at least in NSW and Qld, it is illegal for a solicitor to pay referral fees, but somehow this business model seems to work Excerpt from a claim farmer s marketing email We are producing over 180 clients per day in the UK We have started in Australia working with claims management companies but are now looking to work with solicitors as we are greatly looking to increase our campaign as we are just scratching the surface and expect to produce over 80 clients per day within two months as long as we can work with the right firms Orders are always made the day before and have to be placed before 5pm to ensure you receive the clients the following day... If you wish to order 60 clinical negligence clients per day, we will need at least three days grace, but you will receive an increase of 20 clients per day Our agreement is set up as an internet marketing agreement for compliance purposes Motor injury insights October 2017 02
It is fascinating how agile the claim farming business model seems to be. The charts below show the numbers of complaints about compensation touting received by the ACCC and indicate that when the going gets tough in one state (NSW), claim farmers can move their focus elsewhere. FIGURE 1 CLAIM FARMING COMPLAINTS 900 Australia-Wide 1,600 By Jurisdiction 800 1,400 Complaints per Month 700 600 500 400 300 200 Complaints per Half-Year 1,200 1,000 800 600 400 100 200 0 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 0 NSW VIC QLD WA SA TAS ACT NT Jun 16 Dec 16 Jun 17 The number of complaints across Australia more than doubled between May 2016 and May 2017. Importantly, these numbers are only those who bother to report claims touting to the ACCC; we can only speculate on the total number of people receiving the calls! Alarmingly, complaints in Qld, WA and SA have more than doubled in the last six months. CTP insurers in Qld are already seeing higher claim frequencies associated with minor injury claims it doesn t take a lot of imagination to see how this could be linked to increased claim farming activity. The number of touting complaints in NSW fell in the latest half-year. This may be partly linked to the impact of the NSW Police Strike Force into CTP fraud (see article on Ravens). We have previously noted the difficulties faced by insurers in dealing with claim farming it is time consuming, costly and often futile to pursue individual claimants for fraud. However, investing time and effort in challenging exaggerated claims, and ensuring they are not over-compensated, will pay off in the long term. Concerted efforts by regulators and insurers working together to understand the dimensions of the problem can help identify key characteristics of suspicious claims. And surely the legal and medical bodies also have an interest in ensuring ethical behaviour by their members, and should be warning against any involvement with claim farmers. Motor injury insights October 2017 03
What can we learn from fatality statistics? For people injured in horrific motor accidents, there can be a fine line between surviving with very serious injuries and succumbing to those injuries. With only small numbers of people suffering severe traumatic brain or spinal cord injuries as a result of motor accidents, data on motor accident fatalities may provide information that can help our understanding of trends in lifetime care scheme participants for example, what can we learn about the age distribution of potential participants? Are fatalities increasing? Nationwide, the numbers of road fatalities steadily decreased to 2014, but in the two years since, fatalities have increased by 13%. The increase has not, however, been uniform: Fatalities have increased for cars, motorcycles and pedestrians, but not bicycles see Figure 2. The movements in fatality numbers vary widely by jurisdiction see Table 1. FIGURE 2 AUSTRALIAN ROAD FATALITIES Number of Fatalities 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TABLE 1 CHANGE IN FATALITIES: 2014 TO 2016 Jurisdiction % Change NSW 24% VIC 17% NT 15% QLD 13% TAS 12% ACT 10% WA 5% SA (20%) Australia 13% Car Motorcycle Pedestrian Bicycle Fewer fatalities among the young For the under 30 age groups, road fatality rates (fatalities as a percentage of the population) have reduced significantly over the last 10 years. A key reason for the reduction is the introduction of Graduated Licensing Systems (GLS) for young drivers. In the early 2000s, no Australian jurisdiction had a comprehensive GLS, but all jurisdictions had some form of GLS by 2014. The road fatality rate for older age groups (above 55) has remained reasonably stable, and because there have been fewer fatalities among the young, the older age groups now account for a greater proportion of total fatalities increasing from around 20% to 30% (see Figure 4). Furthermore, with the ageing of Australia s population, the absolute number of fatalities from older age groups has increased. Motor injury insights October 2017 04
FIGURE 3 ROAD FATALITY RATES 160 Fatalities per Million People 140 120 100 80 60 40 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0-14 15-29 30-54 55+ FIGURE 4 AGE MIX OF ROAD FATALITIES 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 <30 30-54 55+ If the changing age mix of fatalities is reflected in the serious injury (NIIS eligible) statistics, we might expect to see an increasing proportion of older people in lifetime care schemes. The design and costing of these schemes has taken a historical view of the experience to estimate potential participants. The last four to five years experience suggests that the age proportions might be different from expectations, with more older people. If this trend continues, then all else being equal (including the total number of participants remaining constant), a higher proportion of older age participants in lifetime care schemes should mean lower cost pressures for these schemes. Sources: bitre.gov.au/statistics/safety/fatal_road_crash_database.aspx roadsafety.transport.nsw.gov.au/downloads/gls.pdf Motor injury insights October 2017 05
Update on Premiums CTP Premiums around Australia and NZ Figure 5 summarises the headline CTP premium rates effective 1 July 2017. The amounts include any loadings relating to Lifetime Care (for those jurisdictions with separate schemes), as well as stamp duty, GST and other levies. The 2016 rates and the % movement in the year are also shown. FIGURE 5 CTP RATES AT JULY 2017: STANDARD MOTOR CAR 700 600 Third party + lifetime care for catastrophic injuries No-fault 500 400 300 200 100 0 (2%) 0% 2% 3% (5%) 0% 2% (7%) (13%) ACT NSW SA WA QLD NT VIC TAS NZ (in NZ$) Jul 17 Jul 16 The NSW premium is similar to a year ago. Premiums increased during the year, but recent lower numbers of legally represented minor injury claims prompted premium reductions effective 1 July 2017, offsetting the mid-year increases. Recent changes in legal cost regulations and fraud mitigation efforts (see article on Strike Force Ravens) appear to have partially reversed the increasing claim frequency trend of recent years. For Queensland, a $16 increase in the NIISQ levy was more than offset by reductions in the CTP component of premiums, giving a total reduction in the year of $16.60. In Tasmania, lower scheme claims costs were passed on to motorists. The NZ premium fell by 13% (which follows reductions of 33% and 41%); favourable investment returns during 2016/17 resulted in a better than expected funding position. Of the Australian jurisdictions, Tasmania continues to have the lowest premium, and the ACT the highest. Motor injury insights October 2017 06
Affordability Index Figure 6 shows a CTP affordability index by jurisdiction (aqua bar). The index expresses the standard metro car premium shown in Figure 5 as a percentage of average weekly earnings a smaller percentage means better affordability. Since the jurisdictions have different benefit regimes, we can t draw conclusions about comparative scheme performance from this index. The diamonds show the affordability index at July 2016. FIGURE 6 CTP AFFORDABILITY INDEX AT JULY 2017 Class 1 Metro Premium as a % of AWE 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Third party + lifetime care for catastrophic injuries No-fault ACT NSW SA WA QLD NT VIC TAS NZ (in NZ$) Jul 17 Jul 16 Since last year, affordability has improved in most jurisdictions the exceptions being NSW and WA, where affordability is largely unchanged. Affordability improved in Qld, Tasmania and NZ, driven by the premium reductions noted earlier. Qld now joins WA as the most affordable of the Australian jurisdictions, closely followed by Tasmania. Motor injury insights October 2017 07
Jurisdiction Roundup NSW New CTP scheme commences 1 December Table 2 summarises some of the key reforms to the NSW CTP scheme. The new scheme sees an overall shift in focus from common law to statutory benefits. TABLE 2 KEY REFORMS TO NSW CTP Area Premiums Observations Renewals will start to go out from mid-october, and the Government has been consistently saying that the premium for the average motorist will go down by more than $100. Motorcycle premiums will not reduce, because of the high cost of adding the at-fault rider cover. Benefits At-fault parties will now be entitled to weekly benefits and medical treatment for up to six months (up from a maximum of $5,000 in the current scheme). Will there be a slow take-up from this group due to lack of awareness? A key reform was the introduction of a minor injury test. Benefits for not at-fault claimants who have minor injuries will be limited to six months, and there will be no access to common law. Draft regulations define an injury as minor if: It is a soft tissue injury (including neck or spine injuries with non-verifiable radiculopathy), or It is a psychological injury diagnosed as acute stress or adjustment disorder only. The soft tissue distinction between minor and other claims should be reasonably robust, but there is concern about the subjective nature of the psychological injury definition. For example, an adjustment disorder is considered a minor injury, and an anxiety disorder is not, and in diagnostic terms there can be grey areas between these. Transition The Government will give individual refunds to motorists for the portion of alreadypaid premiums covering the new scheme period. People will start to receive their refunds from January 2018, with priority given to those receiving the greatest amounts (e.g. taxi owners and business fleets). Insurers are deep into their implementation work. Besides serious IT changes, it is expected that claim management models and culture will change a lot, with the move in focus from common law to statutory benefits. Dispute Resolution The details of the new dispute resolution process are also being defined there will be a compulsory Internal Review by the insurer, and then a comprehensive Dispute Resolution Service which is a division of the regulator, SIRA. Legal Costs New legal cost regulations are coming (not yet released), and will be important to the involvement of the legal profession. An early version of these regulations introduced in November 2016 seems to have contributed to a significant drop in the numbers of new claims being lodged in the current scheme. Motor injury insights October 2017 08
16 arrests for CTP fraud Strike Force Ravens was established in August 2016 to investigate syndicates who have been targeting the CTP scheme. By mid-september 2017, Ravens investigators had arrested 16 people (the most recent three involved a solicitor and two men posing as physiotherapists) and laid more than 120 charges in relation to total fraud of more than $11 million. This may have dampened claim farming activity, contributing to the recent drops in claim numbers. Premium reductions for all insurers Figure 7 shows the insurers premium rates for model drivers, ranked from most expensive to cheapest, at April 2017 and October 2017. FIGURE 7 NSW CLASS 1 METRO PREMIUMS Policies Incepting 16 APRIL 2017 Policies Incepting 1 OCTOBER 2017 Change Decreasing price CIC-Allianz $673 CIC-Allianz $663 ($10) NRMA $640 Allianz $611 ($12) Allianz $623 NRMA $597 ($43) AAMI $622 AAMI $595 ($27) QBE $613 GIO $590 ($16) GIO $606 QBE $587 ($26) Since April, all insurers have reduced their premiums in response to the drop in legally represented minor injury claims. The average premium reduced by $26 or 4%. CIC Allianz remains the most expensive best price, and QBE is now the cheapest. Motor injury insights October 2017 09
Queensland The scheme review committee reports back In 2016, MAIC appointed a committee to review Queensland s CTP scheme, focussing on affordability, efficiency and fairness. While the committee s overall conclusion was that no major reform is needed in Queensland, it made 19 recommendations to MAIC. We have identified seven of these recommendations which could be adopted immediately to improve affordability and efficiency; see Table 3. TABLE 3 THE COMMITTEE RECOMMENDS THAT 1 As a matter of priority, MAIC take action to address the issue of high insurer profits in the scheme. 2 Action be taken to improve consumer awareness of choice of CTP insurer both at renewal and when purchasing a vehicle. 3 Develop appropriate benchmarks to enable enhanced assessment of scheme performance. 4 MAIC implement a legal fee reporting model to allow for greater transparency of scheme efficiency. 5 Areas of overlap and lack of clarity in the current prudential supervision arrangements be eliminated. 6 Insurer performance monitoring, benchmarking and reporting be strengthened. 7 Information on scheme trends and performance be made more readily available to all stakeholders. Of the remaining recommendations: Seven endorse retaining existing scheme features Five require further exploration and would involve legislative changes. Further information can be found on MAIC s website. In the context of an environment where there is mounting evidence of claim farming, we query whether the scheme review has missed the opportunity to proactively strengthen the sustainability, efficiency and fairness of the current scheme by tackling claim exaggeration and legal involvement in minor injury claims. Motor injury insights October 2017 10
Evidence of claim farming? The numbers of new claim reports have continued to increase in the past 12 months, driven by low severity legally represented claims. Figure 8 shows the number of reports by quarter. FIGURE 8 QLD CTP CLAIM REPORTS 2,500 2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Claims Reported Jun 17 Claims Yearly Average Report Quarter Analysis of the delays between accidents and claim reporting suggests that claim farming activity may be driving some of the higher claim numbers. Small reduction in the ceiling price Effective 1 July 2017, MAIC reduced the Class 1 ceiling premium by just $0.60 to $352.00. This was the net impact of: A $16 increase in the NIISQ levy (from $69 to $85) A $16.60 decrease in the CTP component of the premium (from $283.60 to $267.00). The four insurers have continued to file at the ceiling price. These latest changes mean that over the year to July 2017, the total Class 1 premium has reduced by $16.60 (as shown earlier in Figure 5). The reduction is greater however, in the component of the premium that the insurers retain (i.e. excluding all levies); that component has reduced by $30 or 12%. A case for lifetime care? Alan was 14 when he was in a car accident that resulted in a very severe brain injury, and he now needs 24 hour care. Alan s CTP claim against the driver was rejected in the Queensland Supreme Court. Why? Alan was out with three teenage friends when they decided to steal a car for a joyride. Alan was in the front passenger seat, a 16-year-old was driving, and another two friends were in the back seat. They had driven less than a kilometre when the driver lost control at a corner and hit a light pole. None of the boys was wearing a seatbelt. In 2013, when Alan s injury occurred, the Queensland CTP scheme was purely fault-based. The judge said the boys were involved together in a criminal activity and that the driver did not owe any duty of care to Alan do not pass GO! Had Alan s accident occurred today, he would still have no entitlement to a common law claim, but he would be covered by the lifetime care scheme in Queensland (NIISQ), providing treatment and care for the remainder of his life. Captain v Wosomo & Anor [2017] QSC 86 Motor injury insights October 2017 11
Australian Capital Territory A citizens jury to improve CTP The ACT Government has announced its first citizens jury to explore possible improvements to the CTP scheme. Despite paying comparatively high premiums (see Figure 5), Canberrans often have to wait at least two years before being paid out, and many injured drivers are not even covered by the scheme (e.g. the oft-quoted kangaroo-hitting driver, where fault cannot be proven). In this deliberative democracy process, a representative jury of 50 Canberrans will identify the key priorities of a CTP scheme, balancing the interests of all road users. The jury will be supported by a Stakeholder Reference Group (legal representatives, healthcare providers, consumers, Government officials, actuaries and scheme design experts), who will formulate and cost a number of scheme options. The jury will reconvene in late March 2018 to determine which option best meets the identified priorities. The jury s preferred option, which the Government has committed to pursuing, is expected to be announced in the September quarter of 2018. Premiums continue to fall Figure 9 shows the recent history of premiums charged for Class 1 passenger vehicles in the ACT. Since our April 2017 edition, all insurers bar GIO have reduced their premiums. FIGURE 9 ACT PREMIUMS: PRIVATE USE PASSENGER VEHICLE 580 Private Passenger Vehicle Premium ($) 570 560 550 540 530 520 APIA AAMI NRMA GIO May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Motor injury insights October 2017 12
South Australia The transition to a competitive scheme continues The SA scheme is currently just over a year into a three year transition phase, during which premiums of the four approved insurers are set to increase by 3% per annum. From 1 July 2019, the market will be opened to competition, with approved insurers able to compete on price and other value-adds. The CTP Insurance Regulator is currently working through several proposals for the insurer and pricing arrangements after transition, drawing on experience in other jurisdictions in Australia and overseas. These proposals are expected to be announced in the coming months. Tasmania Review of MAIB s pricing policies The Office of the Tasmanian Economic Regulator recently completed a review of the motor injury insurance pricing policies of the Motor Accidents Insurance Board (MAIB). Overall, the results were uncontroversial. The recommendations to the Tasmanian Government included: No indexation of premiums for the 2017/18 year For the subsequent three premium years, indexation of premiums should not exceed Average Weekly Ordinary Time Earnings A new vehicle class should be created for ride sourcing vehicles, with an initial premium relativity of 1.00 and the same recommended maximum premium as Class 1 vehicles. Various other changes to premium relativities were recommended, to be phased in over four years. Motor injury insights October 2017 13
Western Australia First year results for WA s lifetime care scheme WA s Catastrophic Injuries Support (CIS) scheme commenced on 1 July 2016, providing lifetime care and support to people catastrophically injured in motor accidents where fault cannot be attributed to another driver. Where fault can be attributed, claimants remain within the existing CTP scheme, though they can elect to have their treatment and care funded by periodic payments. By 30 June 2017, 48 injured people had been assessed as having catastrophic injuries, with a further 13 undergoing eligibility assessment. Figure 10 summarises information on the 48 participants/claimants. FIGURE 10 CHARACTERISTICS OF 2016/17 S 48 PARTICIPANTS/CLAIMANTS Gender Scheme Injury Type 75% Male 25% Female 58% CIS Scheme 42% CTP Scheme 69% Traumatic Brain Injury 29% Spinal Injury 2% Other Number of Participants 12 10 8 6 4 2 0 Age Band 0-14 15-24 25-34 35-44 45-54 55-64 65+ Overall, fewer people have been catastrophically injured on WA roads than expected in the first year, though they have been younger and more severely injured than expectations. ICWA cracks down on fraud Following a rear-end collision in September 2015, an individual reporting neck, shoulder and knee injuries lodged a CTP claim. The claim was investigated by the Insurance Commission of WA (ICWA) after fraud indicators highlighted areas of suspicion. After pleading guilty in June 2017 to two offences relating to providing false or misleading information, the claimant was fined, ordered to pay legal costs and a criminal conviction was recorded. Motor injury insights October 2017 14
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 +61 2 8252 3458 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 2017 Finity Consulting Pty Limited. AUSTRALIA Sydney Level 7, 68 Harrington Street The Rocks NSW 2000 +61 2 8252 3300 Melbourne Level 3, 30 Collins Street Melbourne VIC 3000 +61 3 8080 0900 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 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 Contact the author Kane Boulton +61 2 8252 3348 kane.boulton@finity.com.au Sydney Office John Jeaitani +61 2 8252 3316 john.jeaitani@finity.com.au Sydney Office Motor injury insights October 2017 15