STANDING COMMITTEE ON LAW AND JUSTICE
Report: Eleventh Review of the Exercise of the Functions of the Motor Accidents Authority and the Motor Accidents Council
Debate resumed from 14 February 2012.
The Hon. SHAOQUETT MOSELMANE
[6.10 p.m.]: I speak on report No. 48 of the Standing Committee on Law and Justice entitled "Eleventh Review of the exercise of the functions of the Motor Accidents Authority and the Motor Accidents Council". The report was tabled with the Clerk of the Legislative Council on 20 December 2011 and the chair of the committee spoke to the report on 14 February 2012. Since 2008 the committee has been required to undertake this review at least once every two years. Whilst the committee undertook the last review in 2010, with the commencement of the Fifty-fifth Parliament following the general election in March 2011 the newly re-established Standing Committee on Law and Justice decided that it would commence the eleventh review of the Motor Accident Authority and Motor Accidents Council in 2011. Taking this approach, the committee expects it will be able to conduct two reviews and receive the Government response to both of the reports within the four-year parliamentary term.
I thank the committee chair, my fellow committee members and the secretariat staff for their cooperation in producing a report with 12 unanimously endorsed recommendations. The eleventh review of the Motor Accidents Authority and the Motor Accidents Council examines a number of issues, with a key focus on insurer profits and access to damages for pain and suffering. Insurer profits refer to super profits, and I will refer to that shortly. The review also looked at various aspects of the Motor Accidents Assessment Service, including the Medical Assessment Service and the Claims Assessment and Resolution Service.
Given the nature of the annual review, we are thankful that a number of submissions were received. The committee heard evidence from a number of representatives from the Motor Accidents Authority, the Law Society of New South Wales, the New South Wales Bar Association, the Insurance Council of Australia, the Motor Accidents Authority and other participants. As the chair noted, the committee examined the performance of the Motor Accidents Authority with reference to four key indicators: affordability, effectiveness, fairness and efficiency. The committee was satisfied that the scheme in general continues to function in the appropriate manner when assessed against the broad performance indicators of affordability and effectiveness. The committee discussed also whether the scheme is fair and efficient in terms of compulsory third party [CTP] prices, injury compensation and treatment of those who are injured in a motor vehicle accident.
A number of issues were raised, including the provision of information. The committee noted critically that the provision of information by the Motor Accidents Authority is always seen as fundamental to the scheme but it is also fundamental to stakeholders and the general public. It is important that people injured in a motor vehicle accident are aware of their rights and responsibilities. To achieve this, the authority operates a claims advisory service, including translation services. In addition, it extensively advertises its green slip calculator. Legal costs were of concern to participants in the current review, as they were during the committee's six previous reviews. In the tenth review report the issue of legal costs was extensively discussed and the Motor Accidents Authority advised that the cost regulation was due to be automatically repealed on 1 September 2010 but that this date had been extended to 1 September 2011.
The Motor Accidents Authority established a working party to review the regulation and advised the committee that the result was a very good package that it expected to put to the Government for the remaking of the regulation. The Motor Accidents Authority advised the committee that the cost regulation had been extended again for another 12 months to 1 September 2012. As with legal costs, costs for services provided by a doctor under the Motor Accidents Scheme are regulated by the cost regulation. With respect to discount rates, when a lump sum payment is awarded to seriously injured people to compensate for future economic loss resulting from their injury, the present value of the future economic loss is quantified by adopting a prescribed discount rate. The Motor Accidents Compensation Act 1999 sets the discount rate for the scheme at 5 per cent. The Australian Lawyers Alliance, along with other contributors to the report, was concerned that the discount rate of 5 per cent may result in seriously injured people receiving inadequate compensation to meet their ongoing care needs. The discount rate was raised by only one stakeholder. The committee will keep a watching brief on the issue.
As to super profits, insurers are required by the Motor Accidents Compensation Act 1999 to report to the Motor Accidents Authority the profit margin on which their premiums are based and the actuarial basis for calculating their profit margins. Insurers report to the Motor Accidents Authority on two types of profits, prospective profit and realised profit. A good understanding of the realised profit may not be known for at least five years after the underwriting year. A number of participants have expressed concern about the size of the profits that the insurers have reported. The New South Wales Bar Association noted that over several years of the scheme's operation insurers had retained profits well in excess of the prospective forecast. I refer to its submission and quote some of the points the association has argued. At paragraph 105 the association states:
Over the last ten years the MAA has steadfastly refused to acknowledge, let alone address, excessive insurer profits. Each year insurers have to have their proposed premium approved by the MAA. The MAA do not permit insurers to charge a premium that allows (on projections) for the insurer to keep as profit more than 8% of the premium collected.
At paragraph 108 the association states:
… the estimate of discounted value of profit for insurers, it can be seen that for the underwriting year ended 30 September 2000, insurers have and will keep 30% of the premium written rather than 8%. For the years 2000 through 2006, insurers have and will profit to the tune of between 18% and 30% of premium written.
At paragraph 112 the association argues:
However, by the time of the 2009/10 report, the 2006 premium collection year was projected to return 18% of the premium to insurers as profits. There were ten percentage points as "super profit"—over $120 million above a reasonable return.
Various participants have raised this as an issue on a number of occasions. At paragraph 117 the association argues:
In all, the "super profit" for 2000 through 2006 is in excess of $1.5 billion.
It is obviously an issue and it was raised a number of times by various participants. They argued that the super profits from 2000 to 2006 were in excess of $1.5 billion. The issue of super profits has been critical to the committee and it made a number of recommendations, including that an actuarial assessment be carried out to ascertain the profits for future investigation. I conclude by saying that it was an interesting investigation and all participants made extensive efforts to ensure their views were heard. As previous speakers have said, the chair ran the committee in a very professional way that allowed all participants to have their say. I thank the chair for his contribution and for this report.
The Hon. SCOT MacDONALD
[6.20 p.m.]: I am grateful for the opportunity to speak on this review. I refer to the affordability of the scheme, about which there was a great deal of discussion. There do appear to be some handsome profits in the scheme. I probably took a more cautious view on this than did some of the other committee members.
Dr John Kaye:
The Hon. SCOT MacDONALD:
Surprise, surprise, according to Dr John Kaye. It is easy to look at the handsome profits and wonder whether they are excessive but the exposure and risk to the Government is uppermost in my mind, and I made that point in the committee room. We do not want a repeat of the HIH Insurance situation where the taxpayer was left to pick up the tab. Let us look at the forecasts and do the actuarial review. We have to be mindful of the difficulties of calculating and forecasting factors such as insurance tails. They are very difficult to calculate into the future and it is very easy to get them wrong. When they are wrong it is generally the taxpayer who has to pick up the tab.
There are a number of good reasons to be cautious. The cost of funding for insurance companies and underwriters has risen and in the current economic conditions with the global financial crisis I believe that will only get worse. We can get excited about excessive profits but will we be the ones to make amends later on and fix it in the budget? I put that on record. We all supported the recommendations by consensus. In relation to premiums, which sometimes look high in the short-term context, we obviously had a win with the Minister for Finance and Services because adjustments were made to motorcycle green slip premiums—which were discussed today in question time. I believe all categories but one were reduced, and that is a win. There is obviously room to review and reflect and the Minister, as he has said on a number of occasions, is mindful of the impact on drivers and the public. If those reviews do reveal an excessive profit is being made there may well be some opportunity to review the cost of green slips.
We also need to look at this matter in the context of the cost of green slips over the past decade or so. Casualty figures have come down from something like 80 per 10,000 vehicles 10 years ago to 55 per 10,000 vehicles now. The trend is good but that trend has been up and down. We have seen those lower figures before and they have rebounded, for whatever reasons. It is a bit hard to tell. It was also explained to us that compulsory third party [CTP] premiums are lower today in real terms than they were 10 years ago. I refer to the evidence of Mr Nicholls, who said that green slip premiums remain lower today in real terms than they were 10 years ago. He said that when the scheme commenced in 1999 premiums were about 55 per cent of average weekly earnings. Today they are around 33 per cent. As he says, and I agree, maintaining scheme affordability is a major challenge facing the scheme.
Those are the viewpoints I wanted to express. I think we are all on the same song sheet about the rest of the recommendations but I urge a little caution in the rush to bring down the price of green slips. We should consider carefully what the consequences might be in 10 years' time when there is an insurance tail that the taxpayer may have to deal with. I record my thanks to the chair, the deputy chair, other committee members and the committee staff and all those who prepared and submitted a submission. It was a bit of an eye-opener for me. I continue to see the inquiry as very worthwhile. As the previous speaker said, I look forward to the next round.
The Hon. PETER PRIMROSE
[6.25 p.m.]: I join with my colleagues and the previous speaker, the Hon. Scot MacDonald, in thanking everyone who was involved in this inquiry, the Eleventh Review of the exercise of the functions of the Motor Accidents Authority and the Motor Accidents Council. To the chair, the Hon. David Clarke, other members of the committee and, in particular, all of those who made thoughtful submissions—they were all thoughtful—and who gave evidence and answered questions so diligently I express my thanks. It certainly made our task much easier.
The New South Wales Motor Accidents Scheme is now in its thirteenth year and the Standing Committee on Law and Justice has undertaken 11 reviews of the exercise of the functions of the Motor Accidents Authority and the Motor Accidents Council, as required by the Motor Accidents Compensation Act 1999. Whilst the committee undertook its last review in 2010, with the commencement of the Fifty-fifth Parliament following the election, the Law and Justice Committee decided it would commence the eleventh review of the Act this year. With this approach the committee expects that it will be able to conduct two reviews and receive the Government's response to both of those reports within the four years of the current parliamentary term. The committee has therefore reviewed the way in which the Motor Accidents Authority and the Motor Accidents Council have exercised their functions with reference to the authority's report of 2009-10.
The current review was conducted concurrently with the committee's fourth review of the Lifetime Care and Support Authority and the Lifetime Care and Support Advisory Council, which was the subject of discussion in this House earlier today. The eleventh review of the authority and the council examines a number of issues, with a focus on insurer profits and access to damages for pain and suffering. In addition, various aspects of the Motor Accidents Assessment Service, including the Medical Assessment Service and the Claimants Assessment and Resolution Service, are reviewed in this report.
The committee received 16 submissions from a variety of stakeholders. The committee also heard evidence from representatives of the Motor Accidents Authority, the Law Society of New South Wales, the New South Wales Bar Association and the Insurance Council of Australia. In addition, evidence was obtained from the Motor Accidents Authority and other participants through a process of written questions and answers. The answers we received were often very detailed and very complex. I again join with all members of the committee in thanking everyone who was involved, in particular the Motor Accidents Authority for its cooperation and for the information it provided.
The report details 12 recommendations. In the time available I would like to focus on the last three, recommendations 10, 11 and 12 which appear in chapter 4, which deals with the Motor Accidents Assessment Service. This is the final chapter of the report and it examines issues raised by participants in relation to the Motor Accidents Assessment Service [MAAS]. The service comprises two components—the Medical Assessment Service [MAS] and the Claims Assessment and Resolution Service, or CARS. Inquiry stakeholders raised a number of issues relating to the Medical Assessment Service, which assesses medical disputes that arise between an injured person and an insurer regarding the treatment, stabilisation and degree of permanent impairment of injuries. In addition, it examines the level of impairment of a claimant's earning capacity. In its eighth review report the Standing Committee on Law and Justice examined in detail the matter of delays in assessments and disputes under the Motor Accidents Assessment Service system.
Pursuant to sessional orders business interrupted to permit a motion to adjourn the House if desired.
The House continued to sit.
Item of business set down as an order of the day for a future day.
Pursuant to sessional orders Government business proceeded with.