Motor Accidents Amendment Bill
MOTOR ACCIDENTS AMENDMENT BILL
Debate resumed from 27 October.
The Hon. B. H. VAUGHAN [3.10 p.m.]: The Standing Committee on Law and Justice, which I chair, welcomes the introduction of the Motor Accidents Amendment Bill. Honourable members know that over the past two years the committee has been conducting an in-depth inquiry into the motor accidents scheme. This has revealed that a number of areas of the scheme require reform.
The terms of reference of the inquiry specifically directed the committee, first, to examine and report on the role of insurers participating in the scheme; second, to examine the accountability and oversight mechanisms of insurers and the Motor Accidents Authority under the scheme; and, third, to examine the concerns of insurees, the level of claims and compensation, as well as legal fees and other such matters as the committee finds appropriate.
I am therefore very pleased that some of the key recommendations of the committee’s interim reports of this inquiry have been reflected in this bill. I note in particular that the Government has taken up the challenge of improving financial accountability in the scheme. In the first year of its inquiry the committee focused on, among other things, the financial accountability mechanisms in the scheme. As the New South Wales comprehensive third party insurance scheme is funded by a compulsory levy on the motoring public of New South Wales, the question had to be asked whether the financial reporting and information available specifically in relation to the scheme was adequate, given the fundamental, social, economic and political importance of the scheme.
The committee examined a number of weaknesses and gaps in the financial reporting of the compulsory third party - CTP - scheme. The committee was frequently taken aback by the lack of accessible and objective financial information on the overall performance of the motor accidents scheme in New South Wales, given the various claims that had been made about the profitability of the scheme in 1994. Therefore, the committee came to the view in 1996:
Not surprisingly, the committee faced a great deal of resistance from the insurance industry in relation to financial accountability reform. Representatives of the CTP insurers were determined to convince the committee that the overall profitability of the scheme could not be measured in a meaningful way. This was so even though the committee was well aware that each insurer utilised notional allocations internally for the purpose of determining or predicting profit and loss levels for its own CTP business.
In addition, at the beginning of the inquiry the committee was shown a graph by John Trowbridge, an actuary, on behalf of the Institute of Actuaries of Australia, which set out the approximate financial results for the industry. These results included the estimated profit and loss in the scheme over the life of the scheme until the 1994-95 accident year. Honourable members can find this graph reproduced at page 27 of the committee’s interim report. In 1995 the CTP insurance industry relied on these estimates to claim that legislative reforms were necessary to raise the threshold for access to non-economic loss under the scheme, as the CTP industry was suffering substantial losses overall.
The committee recognised the inherent difficulties in the accurate calculation of the levels of profit and loss in the scheme for a number of reasons, including the lack of certainty in long-tail insurance business in relation to liabilities incurred, the element of guesswork in calculating the provisions made for outstanding liabilities, the variable use of prudential margins between CTP insurers, fluctuation returns on investment income, and the difficulty in accurately quarantining CTP capital and investment income from the overall capital and investment income of the particular general insurer.
Nevertheless, claims were being made and are still made about the finances of the scheme, and objective information must be available to enable such claims to be properly tested and scrutinised. Therefore, the committee was very interested to learn from a leading insurance accountant that it would be possible to compile meaningful CTP financial information on an industrywide basis. Mr Leigh Minehan, a partner at Coopers and Lybrand, informed the committee in a letter dated 20 November 1996 that the underwriting result for the scheme could be calculated on the basis of information either already available to the Motor Accidents Authority or otherwise available in the marketplace. Mr Minehan stated:
Objective and accessible information concerning the overall financial performance of the CTP scheme in New South Wales must be available to the New South Wales Government, members of Parliament, the media, interest and lobby groups, and to the public at large, to enable sensible and accurately informed responses to any claims made concerning the finances of the scheme, and/or the need for legislative reform.
In his letter to the committee Mr Minehan continued to detail how methodologies could be employed to overcome some of the difficulties inherent in calculating the overall profitability of the scheme. He noted that an industrywide prudential margin could be agreed upon based on the whole scheme’s claims experience. He noted also that investment income over the whole scheme could be determined in a meaningful way, by applying risk-free rates, as represented by yields on government and semi-government bonds, to the average balance of technical provisions, that is, unearned premiums and outstanding claims over the relevant period.
In its interim report of December 1996 the committee therefore recommended that the Motor Accidents Authority and the Insurance Council of Australia investigate the best option of collating an industrywide analysis of the financial performance of the scheme, which would be tabled before Parliament in a CTP annual review. In this regard the committee recognised in the recommendations that the industrywide analysis was to be treated as public interest information only and it should be consulted as the best guide to the overall financial performance of the scheme at a particular point.
Further, in the course of examining the financial accountability of the scheme, the committee was somewhat surprised to discover that sections 112 to 115 of the Motor Accidents Act were substantially misleading as to the powers and practices of the Motor Accidents Authority in relation to the supervision of licensed insurers. For example, section 112 refers to an insurer’s investment of third party funds. The committee received correspondence dated 15 October from Mr Dallas Booth, the immediate former general manager of the authority, stating, "There are no specific CTP funds because CTP premiums are not distinguished in any way from other general insurance funds." Further, section 113 provides that a licensed insurer shall lodge with the authority quarterly returns in relation to the business or financial position of the insurer. It also enables the authority to make publicly available a copy of any return.
In the same correspondence Mr Booth noted that this section does not apply as "there are no prescribed quarterly returns under section 113 . . . the MAA monitors insurer insolvency using copies of the Insurance and Superannuation Commission insurance returns". Finally, given the serious nature of claims made about the finances of the scheme, the committee was shocked to learn that sections 114 and 115 had never been utilised by the authority. Section 114 provides the authority’s board of directors with the power to appoint an independent auditor to inspect and report to the board on records relating to the business or financial position of a licensed insurer. The section also refers erroneously to third party funds.
Section 115 provides the authority with further powers in relation to the disclosure by insurers of financial information. Mr Booth in correspondence noted, "To date, the MAA has not exercised its powers to appoint auditors or inspectors. Sections 114 and 115 might be regarded as reserve powers of the MAA, for use in the case of real concern as to the financial position of licensed insurers." As Chairman of the Standing Committee on Law and Justice, I welcome the strengthening of section 115 under this bill. Honourable members will note the extension of the authority’s powers to the collection of information about the costs of claims handling and about the settlement of matters as well as to the collection of information for the specific purpose of consideration by the authority of premiums filed.
However, I emphasise the committee’s concerns that further reforms are needed in relation to sections 112 to 115 to establish accurately and clearly the powers of the MAA. The powers of the authority in relation to the disclosure of financial and related information are crucial if financial accountability and monitoring is to be a meaningful exercise under this legislation. The provisions currently establishing the authority’s powers in this regard are either misleading or incorrect or they are not being properly utilised by the authority. I
encourage the Government to further examine the accuracy and clarity of those sections as well as seriously consider the potential for the preparation of information in the public interest on the overall finances and profitability of the scheme on an annual basis.
The Standing Committee on Law and Justice strongly welcomes and supports the provisions under the bill that will empower the MAA to expose inappropriate behaviour by insurers in the scheme. The capacity for such exposure is clearly in line with the philosophy and particular recommendations of the committee’s interim report for this inquiry, particularly in the areas of general accountability, insurer compliance with obligations under the Act and the proper treatment of claimants under the scheme. For example, recommendation 25 of the committee’s interim report of December 1996 in relation to the complaints handling mechanisms in the scheme states:
The Motor Accidents Authority has sufficient information from the licensed CTP insurers to determine the industry’s earned premium pool for any particular period. Similarly, the MAA receives considerable statistical data on claims to allow the valuation of outstanding claims on an industry wide claims expense. An advantage of calculating an outstanding claims provision on an industry wide basis is that it will take out any inherent inconsistencies which occur between the actuarial claims valuation assumptions and methodologies employed by the respective licensed insurers.
New section 132C will broadly empower the authority to report to the Minister in relation to insurer compliance with any requirements under the Act, the code of practice for claims handling prepared under the Act, and any conditions of licences granted under the Act, and about complaints made about insurers. I strongly welcome also the proposed power of the authority to recommend the tabling of a report in the Parliament.
I believe that this section will have the capacity - if fully and properly implemented by the authority - to effect a significant rebalance of power in the scheme between insurers and claimants in favour of the proper treatment of claimants. Such proper treatment includes the speedy, sensitive and competent handling of claims and the speedy, fair and reasonable provision of interim payments for medical and rehabilitation services as required under section 45 for a seriously injured motor accident victim before final settlement is reached.
I address specifically the very important issue of section 45 of the Motor Accidents Act, which this bill proposes to amend. I have previously spoken at length in the House on the Stubbs case. That case exposed deficiencies in the process for the proper and fair provision of interim payments for motor accident victims when liability has been admitted and before a final settlement or determination is reached. The Attorney General in his second reading speech referred to the minor amendment that clarifies that section 45 payments extend to attendant care. I welcome this amendment, and note that in the view of the committee it is certainly not a minor amendment.
In public hearings recently conducted by the committee evidence was put forward that section 45 was originally drafted to exclude specifically interim payments for attendant care. However, the provision of funding for the attendant care needs of a seriously injured motor accident victim is absolutely essential for that person’s rehabilitation. In the case of a seriously injured infant or child such as Jackson Stubbs - who was several months old - section 45 funding may be required for many years, as the final compensation amount cannot be properly determined until the child has matured and it is clear how extensive and serious the injuries are.
The committee welcomes the provision in the bill for the arbitration of section 45 disputes. In the course of the inquiry into the motor accidents scheme the committee considered the issue of the resolution of section 45 disputes. The decision of the New South Wales Court of Appeal in the Stubbs case made it clear that a motor accident victim has no private access to the courts for the purpose of enforcing an insurer to meet properly its statutory duty under section 45. This was essentially a result of section 118A of the Act, which states that no proceedings may be taken against a licensed insurer for failure to comply with the terms of the insurer’s licence or the Act, except by the authority.
The decision in the Stubbs case has effectively left motor accident victims at the mercy of the insurer’s discretion as to what constitutes reasonable and necessary payments for the medical and rehabilitation care needs of the victim, with no method for review of such a decision. This is clearly not a satisfactory situation. Indeed, it is well known that the three justices of the Court of Appeal in the Stubbs case found this situation to be unjust and worthy of the Government’s immediate attention.
Therefore, in the second interim report for the inquiry of December 1997, in the wake of the decision of the Court of Appeal about Stubbs, the committee recommended that the Motor Accidents Authority give urgent consideration to the development of means by which disputes about what constitutes reasonable and necessary services or payments under section 37 or section 45 of the Motor Accidents Act may be quickly and finally resolved. The Motor Accidents Authority has
responded by establishing an interim procedure for the resolution of section 45 disputes. However, a permanent and objective forum for the ultimate resolution of such disputes is clearly warranted.
Given the importance of section 45 to seriously injured motor accident victims, at this stage I would like to put the House on notice that the committee will be considering section 45 in further detail in its final report for the inquiry into the Motor Accidents Authority. This report will be tabled in the House in November. It is planned that the committee will be considering an alternative process for the resolution of section 45 disputes that is more closely aligned to the expert and objective assessment of the victim’s needs at first instance before arbitration is even considered. Such a process could provide a quicker, fairer, more accurate and less costly method of determining what is "reasonable and necessary" under section 45. In this sense, the committee has been inspired by the model for the assessment of such needs which is in place in Ontario, Canada.
This is a matter specifically examined by Reverend the Hon. F. J. Nile, the Hon. Helen Sham-Ho, Ms Vicki Mullen and me last year. This model is known as the scheme of designated assessment centres which involves recognised centres of expertise in the assessment of a motor accident victim’s medical, rehabilitation and attendant care needs. In recent hearings before the committee both the Motor Accidents Authority and the NRMA have indicated their preliminary support for such a model, and both organisations are currently considering in detail the potential application of the designated assessment centres model in the New South Wales Motor Accidents Authority.
Further information about the Ontario designated assessment centres is attached as appendix 3 to the committee’s second interim report for this inquiry of December 1997. I note that such assessment centres could even have a role in the efficient and less costly provision of expert assessments relevant to the final determination of the quantum of damages in a motor accident case. In this regard, the House is well aware of the cost and difficulties associated with the provision of expert medical evidence in the adversarial setting of the courtroom, particularly where non-demonstrable injuries such as whiplash are involved.
I would now like to address the issue of the early settlement of motor accident claims, and the role of alternative dispute resolution, for which the bill makes detailed provisions. As honourable members may be aware, the main reason for the delay in the preparation of our final report for its inquiry into the motor accidents scheme has been the focus of the final phase of the inquiry on the issue of legal costs in the scheme. This issue has obviously generated a level of controversy over the last 18 months. The committee has waited for the release of important empirical research in this area that has been conducted by Professor Ted Wright and his team at the Justice Research Centre.
The report of this research was publicly released and tabled before the committee on 11 August 1988. During a public hearing on that day, the committee gave all of the key interest groups the opportunity to address the findings of the report. I do not propose to cover the detail of the report or the hearing at this moment. However, I note that one of the key directions that arose out of the report was the need to focus less on the actual legal fees being charged within the context of the scheme and to focus instead on the levels of legal activity within the scheme.
In this sense there was a clear and general consensus at the public hearings of the committee on 11 and 12 August that the litigation rates in the scheme must fall. There is a clear need for more cases to be settled early, and I emphasise that they need to be settled before the commencement of litigation. One of the most fascinating findings in the report of the Justice Research Centre was that average legal costs in claims in which litigation is commenced are more than 10 times the average costs in claims in which disputes are resolved without litigation, and that a reduction in the current litigation rate of 50 per cent and 40 per cent could result in substantial savings in legal costs of anything up to $20 million statewide.
For this reason the committee applauds the clauses in the bill that provide for mandatory offers of settlement to be made by both parties before conciliation and/or litigation can be commenced. These offers are to be made based on a written notice of particulars provided by the claimant to the insurer. Under the bill this notice is required to provide sufficient detail to enable the insurer to make a proper assessment of the claimant’s full entitlement to damages. I note that in the event of mutual rejection of offers of settlement the bill provides for the compulsory conciliation of a matter if a determination is made by the motor accidents claims assessment unit that the matter is suitable for conciliation.
I welcome the clauses in the bill that link the allocation for the burden of legal costs to the relevant decisions of either party to reject what
prove to be reasonable offers of settlement or the reasonable assessment of a conciliator. The current situation is that if a motor accidents case is judicially determined, and a plaintiff receives a judgment for damages, a costs order will normally be made in favour of the plaintiff according to the costs indemnity principle, irrespective of any offer of settlement. The model for the allocation of legal costs between the parties under this bill represents a substantial departure from the costs indemnity principle, and it will therefore provide a particular incentive for the plaintiff and his or her lawyer to seriously consider accepting reasonable offers of settlement or the assessment of the conciliator if agreement is not reached at a conciliation conference.
In this regard I note that the terminology in this bill relating to conciliation may be somewhat misleading, given that it is proposed that conciliators will have the power to make an assessment of the case and to specify an amount of damages in the absence of agreement at the conciliation conference. I also note that the increased costs incentive for the plaintiff and his or her lawyer to accept reasonable offers of settlement or assessments made by a conciliator is somewhat balanced by the provisions in the bill that provide for the disclosure by the individual insurers of information to the Motor Accidents Authority concerning the settlement of claims by the insurer. I also note that the bill proposes to give the Motor Accidents Authority the power to make it a condition of an insurer’s licence that it meets specified levels of early resolution of claims.
I am sure that the combination of the above proposals should provide for a higher pre-litigation settlement rate in the motor accidents scheme. This outcome would be a particularly positive development in the scheme. It obviously has the potential to reduce the costs of the scheme. It also has the potential to make the assessment and the determination of motor accident disputes less stressful and traumatic on victims and their families. The House will be well aware of how stressful the process of litigation can be, particularly where a victim and his or her family are already suffering from severe stress and grief.
However, I wish to express some concern in relation to the proposal for compulsory conciliation. As a preliminary aside, it has been suggested to the committee that compulsory conciliation or compulsory mediation is somewhat of an oxymoron. On a more serious note, the committee is aware that the dispute resolution process can be used by determined insurers in particular cases to wear a plaintiff down, exhaust their patience and their financial reserves, and thereby force the plaintiff to accept an unreasonable offer.
As the model for the allocation of legal costs under this bill provides no further costs incentive for insurers to resolve claims early, I would encourage the Government to examine the issue of a more lengthy dispute resolution process being used as a powerful bargaining weapon against a plaintiff. In this sense the use of the resolution process with the added stages of assessment and conciliation could substantially add to the cost of a particular claim if the insurer is determined to have a matter go to court. It is well known that it is standard practice for some insurers to resist all chances of early settlement and litigate the majority of their claims.
I congratulate the Government on this bill and encourage all honourable members to maintain a close interest in future developments in the motor accidents scheme. The compulsory third party scheme plays a vital and sensitive role in our society. The scheme not only protects individual citizens from the potentially disastrous financial consequences of being the unsuccessful defendant in a serious claim; it also provides compensation for the needs of those insured on our roads, with a particular emphasis on the ongoing needs of the seriously injured. I have been comforted today by the presence of Miss Vicki Mullen, the senior project officer of the committee, and by a distinguished representative of the Insurance Council of Australia.
The Hon. Dr B. P. V. PEZZUTTI [3.41 p.m.]: I listened carefully to the erudite contribution of my colleague the Hon. B. H. Vaughan, who has had access to the resources of the entire committee of which he is chair. He has done much good work in this area. I was disappointed that he did not take the opportunity to mention the good work that has been done by the Motor Accidents Authority in trying to improve the quality of medical and other treatments. I know that that is part of the report, because I have read it carefully. The contribution by Professor Nick Bogduk from the University of Newcastle was heavily funded by the MAA and the work done by him and his team was outstanding.
As a result of their work the pain and suffering of a large number of people may be reduced and their quality of life may be substantially improved, particularly with whiplash injuries - therefore, the costs of this scheme will drop. The costs of the scheme will be reduced by the investment of the MAA more than it will following this legislation. The previous Government had faced
a market failure of the former CTP scheme; that scheme was $1.5 billion in debt. The scheme introduced by the previous Government is now going through a second series of amendments. Earlier the MAA had to borrow $1 billion from Treasury, and that loan is currently being serviced by a $43 levy on vehicle registrations. The legislation will scrap that levy.
How will that $1.5 billion be paid off? How will that money be recouped? CTP insurance has increased from $239 under the previous Government to a minimum of $430, and the premiums are not equitably spread. The average cost of a claim is now $42,000 and there are $250 million in claims outstanding. This legislation will not necessarily improve the health of the scheme, but it may improve its operation. I am encouraged by the approach to alternative dispute resolution which has been taken by the Government. It is not an oxymoron, but it is a contradiction in terms to have compulsory conciliation. It is a reasonable attempt to help people understand that it is far better to have early settlement than to go through the disabling process of court action.
However, the insurance companies have their own means of discretion in setting the rates that apply to an individual for compulsory third party insurance. The main reason for my contribution is my concern about the enormous gap between the premiums extorted from the people in western Sydney and that paid by people in the inner city. My research officer approached the MAA and AAMI and gave the example of a 27-year-old female living in Lemongrove who drives a 1985 Toyota Camry. The quote for CTP by AAMI was $538, the base premium being $467. In contrast, a 32-year-old female living in Surry Hills, postcode 2010, driving a 1994 Daewoo, who held other insurance with that company, was quoted $397.
That is a difference of $167, almost 50 per cent, between one insurance company and another on the same base premium of $467. My research officer, to whom I am indebted, also said it is impossible to shop around for insurance in western Sydney because there is no insurance company agency in western Sydney. They do not want the business! Once people get insurance with that company they happily stay with that company and renew each year by post. My research officer ascertained that AAMI is the cheapest insurance company for CTP, and the most expensive was Mercantile Mutual. The difference in premiums for a 27-year-old female from the western suburbs driving an aged car and a 32-year-old female from the inner city driving a newer car is 50 per cent - an enormous difference!
Under the legislation insurance companies are entitled to have a gap of 15 per cent, plus or minus, and they use it. Worse examples involve young males. We have a long way to go to achieve an equitable system under which a person who is injured or involved in an accident will receive some compensation, and have certainty in the system. I am pleased that that certainty will remain, but I am concerned about the inequity of the system toward people who need to have the cheapest premiums - and they are not getting cheap premiums. More importantly, I am distressed by the dishonesty of the Government. It trumpeted this legislation as offering cheaper third party premiums. What a cruel hoax on the people of western Sydney, on young people and on taxpayers.
The Government knows that this legislation will not even cause a pause in the rising cost of third party insurance, unless we get better treatment or have fewer accidents. Although we now have fewer accidents and the number of claims is lower we still experience a rising cost of the scheme. The Government has not looked seriously at other ways of reducing costs. I appreciate the imposition on the Independent Pricing and Regulatory Tribunal of having to investigate what insurance companies are doing and how they estimate their cost rises. However, the process is not equitable or fair. At the end of the day this legislation will not lead to cheaper insurance rates. The Government should be condemned for the huge, almost double, costs experienced since 1995. The legislation will not put a serious dent in the continuing rise of insurance unless the Government takes further steps.
Reverend the Hon. F. J. NILE [3.50 p.m.]: The Christian Democratic Party supports the Motor Accidents Amendment Bill, which will amend the Motor Accidents Act 1988 so as to rationalise the objects of the Act, by incorporating a number of amendments, but particularly to revise the procedures to be observed in dealing with claims for damages in respect of the death of or injury to a person caused by the fault of the owner or driver of a motor vehicle, particularly in the areas of initial handling of claims, referral of disputes about claims to conciliation, and commencement of court proceedings in connection with claims.
Object (e) of the bill is to provide for payment of conciliation and court fees as determined under regulations; and object (f) is to establish a motor accidents claims assessment unit, which is to include a conciliation service comprising conciliators. The Christian Democratic Party supports that objective, even though, as the Hon. B. H. Vaughan said, the inquiry into legal costs did not damn the legal profession as much as many people expected.
However, legal costs remain a major factor in cases involving motor car accidents.
The Australian Plaintiff Lawyers Association acknowledges that legal fees make up $48 of an average premium of $400, or 13 per cent of the cost of a green slip. That figure does not comprise legal costs only but includes insurers’ administrative and investigation costs and payments for medical reports. The increases cannot, therefore, all be blamed on legal costs. However, 13 per cent is not a small percentage. There is concern also about whether some payments for medical reports are excessive and costs are higher than they should be because some people might consider their claims just another insurance claim. The Christian Democratic Party supports that objective of the bill that makes provision for conciliation and pre-conciliation procedures, which must reduce legal costs if availed of prior to litigation. Schedule 1 will insert a new division 3A into part 5 to provide a new procedure for conciliation of claims where liability is admitted. The explanatory note to the bill sets out the procedure as follows:
The Motor Accidents Authority be given specific powers to collect information and statistics (in relation to the scheme as a whole as well as in relation to the individual licensed CTP insurers) on the number of complaints and their resolution under the internal and external dispute resolution mechanisms. These statistics should be published by the Motor Accidents Authority in the CTP annual review.
(a) The insurer is under a duty to make an offer of settlement within 3 months after the notice of particulars is given under proposed section 44C.
The time limit means that both the insurer and the claimant will have to act promptly in the matter. The explanatory note continues:
(c) The insurer is under a duty to accept or reject the counter-offer within 4 weeks.
(b) The claimant is under a duty to accept the offer, or make a counter-offer, within 4 weeks.
That unit then plays its role. The explanatory note continues:
(d) If the counter-offer is rejected, either party may refer the dispute to the Motor Accidents Claims Assessment Unit for conciliation.
That is when the heavy expenditure will occur. Thirteen per cent of $400 adds up to millions of dollars in legal expenses on the whole of the green slip costing. The explanatory note continues:
(e) The Unit is to screen the dispute and either refer it for conciliation, or issue a certificate if it decides that the dispute is not suitable for conciliation (enabling court proceedings to be commenced).
(f) A matter referred to conciliation is to be the subject of an assessment by a conciliator.
(g) If the conciliator’s assessment is rejected by either party, the conciliator is to issue a certificate that the conciliation has failed (enabling court proceedings to be commenced).
The new division adopts some of the concerns expressed by the Law and Justice Committee, of which I am a member, in its interim report, "Motor Accidents Scheme Compulsory Third Party Insurance", Report No. 3, which was ordered to be printed on 9 December 1996. The committee is pleased that the Government has taken note of the recommendations from that part of the inquiry, which has been an ongoing one. Now that some authoritative material has been received on legal costs it would appear that, although major, they are not as large a factor as some had thought. I note that the Government is confident in the statements it has issued about the bill that there will be some lowering of green slip costs. However, in a letter dated 15 October 1998, Alan Mason, Chief Executive of the Insurance Council of Australia Ltd, wrote to me:
(h) The matter can be settled at any stage during this procedure.
You will be aware that the Premier and the Attorney-General have foreshadowed amendments to the Motor Accidents Act aimed at reducing the cost of Greenslips in NSW.
The proposed changes were not discussed with the insurance industry prior to the public announcement, and based on a last minute briefing, it is difficult to see these changes having anything but a marginal impact on CTP premiums. The ICA’s media release is attached.
Of most concern to CTP insurers is a proposal to give the Motor Accidents Authority greater regulatory powers and greater access to financial information about insurers in determining whether to accept or reject a premium. It is difficult to know what information is not already available.
Honourable members know all about the massive debt from the GIO, and many citizens of New South Wales still have a surcharge of $45 on their registration to cover it. My concern is that nothing should be done that jeopardises the scheme so the Government is forced to take on the scheme if the private insurers feel it is unworkable because, from their point of view, it would not provide profits and could cause the companies great losses. No company would be prepared to take that risk; each would have to consider whether it should continue as a CTP scheme insurer. I think that some insurers remain because they wish to provide a comprehensive range of services to clients.
To companies like the NRMA, which covers many areas of insurance and has two million or more members, CTP insurance is a major factor. It would not wish to be placed in a position where it could not provide that insurance cover. But it is carrying a big load at present and, with the pressures to always be financially viable, it could be under pressure to consider its future role in CTP insurance. The Insurance Council of Australia Ltd went on to say in its letter of 15 October:
The MAA already receives comprehensive actuarial, statistical and financial information to assist it in determining if an insurer’s premium filing is reasonable. It must ensure that any profit is not excessive and that the cost of claims is fully funded, something which did not happen when CTP was a government-run monopoly and which left taxpayers with a huge debt.
As you know, the process for review of CTP premiums has been scrutinised by the Legislative Council’s Standing Committee on Law and Justice and the Committee has recommended that the process is appropriate and should continue.
That is the point I was making. The letter concluded:
If these amendments mean that the Government is moving back towards political interference in the pricing mechanism, which would not allow insurers the freedom to price the product to cover claims, administrative costs and a reasonable profit, then the viability of the scheme would be under threat.
If you have any further questions . . .
The letter seems to contain some criticism of the Government. According to the second paragraph, as at the date of the letter the ICA had not seen the detail of the bill. I believe that the Government has to have extensive consultation with the insurance industry to secure the viability of CTP insurance. The Australian Plaintiff Lawyers Association, which supports the bill, expressed a concern that I share in a letter dated October 23, which it sent to me, and I assume other crossbench members. One of its strong points is:
The Insurance Council has asked to see the detail of the bill as soon as possible. If our concerns are not allayed, I will be seeking to discuss the matter further with you.
What is both costly and unwelcome is the unwillingness of insurers to reduce their huge reserves and to settle claims realistically.
This maintains one of the greater myths associated with the compulsory third party scheme. Critics of insurance companies continue to look at the premium and output figures for one year although they are irrelevant. Insurance companies must take into account that premiums for one year are not paid out for accidents in that year; it may take another year, five years or even 10 years to pay out premiums, especially for accidents involving children. Expert insurance assessors must try to calculate what amount will be paid out in claims in two years, five years or 10 years. If the premium and payout figures for one year were the same, the scheme would be bankrupt because there would be no reserves for payouts in future years.
Pursuant to sessional orders business interrupted.
Since 1995, the level of premiums annually has been greater than insurer annual costs. An estimate of total premium receipts of $1.4 billion as against total liabilities of $600 million was made for one year.