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How is your green slip premium spent?

Each time you pay for your green slip, do you wonder exactly how your premium is spent? Motorists buy a green slip to pay for others who are injured or killed in a motor accident. Like any type of insurance, they do not know if they will ever have to make a claim.

Sydney has the highest green slip premiums in the country. The average metro premium in NSW is $637, compared to $595 in the ACT, $494 in Victoria and $303 in WA. What is more, NSW premiums could rise another 20% this year.

There are a few reasons why green slip prices are rising. For example, increasing number of claims, more fraudulent claims, and the escalating costs of medical care.

State Insurance Regulatory Authority (SIRA) is the authority responsible for regulating the NSW CTP scheme. It provides a useful breakdown of the way a typical green slip premium of $637 is spent:

NSW CTP scheme expenses

  • $98 (19%) is insurer profit
  • $89 (18%) is for legal and investigation costs
  • $78 (15%) is for insurer expenses
  • $15 (3%) is SIRA and RMS expenses.
Total expenses of the NSW CTP scheme are $280, or 55% of the green slip premium.

Direct claimant benefits

Out of a typical metro green slip premium, $230 or 45% goes directly to claimants under the NSW CTP scheme.

The minority share of premium going to injured people is because of the common law, fault-based system. The need to establish fault and the extent of injury takes time and money. As well as injury lawyers, SIRA’s assessment services and the courts may need to resolve disputes to reach a settlement.

Because this process can take 3 or 4 years, insurers are uncertain how much they will have to pay. So they typically set higher premiums in the present to allow for unknown future payouts.

Other expenses of the scheme

Not included in the expenses and claimant benefits above are $47 for GST and $80 for the Lifetime Care and Support (LCS) Levy (for a typical metro green slip). The Medical Care and Injury Services Levy (MCIS Levy) mainly funds the LCS scheme for people who are catastrophically injured in accidents.

More than one third of people who make a claim under the LCS scheme are 15 to 29. They need to be supported for many years, at an average lifetime cost of $2 million.

Even minor injury claims under the CTP scheme average $95,000-$110,000 each. In the past 7 years, the amount of green slip premium going towards minor injury claims has risen 121%. Even if it is provided by family members, medical care costs increased from $18 in 2004 to $42 per policy in 2014.

SIRA is currently looking at reform of the NSW CTP scheme to address some of these problems.

Meanwhile, most motorists want to know how to keep the cost of their premiums as low as possible. It is worth investigating what insurers look for and doing as much as possible to pay a fair price.

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