In this blog, I will be discussing the Motor Accident Insurance Commission’s review of the CTP Scheme.
A discussion paper was recently released by the MAIC which contains some interesting ideas and potential changes to how the CTP insurance scheme is managed in Queensland.
Importantly, it is comforting to know that there are no proposed changes to compensation entitlements to injured people.
The CTP scheme was last reviewed by the MAIC in 2016.
The current market share of insurers in the CTP scheme involves Suncorp, Allianz, RACQ and QBE with Suncorp having the greatest share of the market.
One of the issues raised is that some insurers are making greater profits than others. A concern raised by the MAIC was if one of the CTP insurers were to leave the market due to a lack of profits and what this might mean for the market if there was less competition.
As at 1 July 2022, the average premium breakdown was as follows:
- 50.8% of the CTP premium was applied to insurer risk;
- 39.6% of the CTP premium was applied to levies and fees; and
- 9.6% of the CTP premium was attributed to insurer expense and profit
One of the issues or concerns raised by the MAIC was the lack of price competition because all of the CTP insurers copy each other by filing at or close to the regulated ceiling price set by the MAIC. During the 2016 review, the MAIC noted that competition was not working as intended with the MAIC being concerned regarding persistently high insurer profits and also wanting to see greater price competition.
The MAIC has revealed that through the latest retrospective profit study performed by an actuary firm they engaged, the average insurer profit margin over the past eight years has been 20% which is well above the 8% profit margin assumed by the MAIC in setting the ceiling price.
To give this some context about profit margin in businesses generally, a profit margin in the range of 7% to 10% is considered reasonable or healthy.
The writer respectfully submits that for CTP insurers to be enjoying a profit margin averaging 20% over the past 8 years suggests that the CTP insurers are making big money and this can only be at the expense of motorists and injured people and some intervention is required.
The MAIC has flagged three scenarios in terms of improving the CTP scheme which include:-
Scenario 1: Maintain the status quo
Scenario 2: Retain existing privately underwritten model with scheme design changes
Scenario 3: Transition to a public underwritten model
Scenario 2 would involve a premium equalization mechanism for Class 1 Vehicles and/or other Vehicle Classes which would be similar to what happens in New South Wales. The perceived advantages of this scenario is that it would allow premiums to be affordable or more affordable regardless of risk level. The perceived disadvantage is that better performing insurers would have less incentive to innovate or out-perform.
Scenario 3 involves quite a substantial change to the current scheme. A public underwriting model would see private insurers leave the market and a public insurer would be responsible for the CTP scheme. For example, the Transport Accident Commission in Victoria has this role. Public underwriting models for CTP insurance also exist in Tasmania, Western Australia and the Northern Territory.
We have something similar regarding workers compensation insurance in Queensland with WorkCover Queensland.
The perceived advantages of the public underwriting model would be a streamlined approach with one insurer creating efficiencies, reducing admin costs and more opportunity to reduce premiums.
The writer believes Scenario 3 has plenty of merit. Having a consistent approach with one insurer in terms of policy and approach for claims management has certainly been helpful with respect to the workers compensation system in Queensland. When dealing with self-insurers with respect to workers’ compensation claims, it has been the writer’s universal experience with all self-insurers that their approach to claims and claims management has been less efficient, more confrontational and more expensive.
With the current CTP scheme in Queensland, there are different approaches adopted by the four CTP insurers regarding compliance, the pre-court procedures and the litigated phase of claims. Some are more cooperative and reasonable to deal with than others. Some are more sympathetic or reasonable towards injured people when it comes to funding medical treatment and rehabilitation. Others take a more difficult or miserly approach.
A consistent, uniform approach would be a step in the right direction as long as the approach was focused on actually helping injured people recover from the accident trauma rather than being focused or excessively focused on matters of technical compliance or requiring a particularly high standard of evidence before agreeing to fund medical treatment and rehabilitation or by adopting a combative approach by incurring significant costs to try to justify decisions to decline funding which is routinely experienced with some insurers.
If the public insurer for the CTP scheme was focused on efficient claims management, reducing costs for motorists and complexity in the claims process for injured people that would be a very positive development for Queensland motorists and for people who are injured on our roads each year.
