There are many issues with reforms to the current NSW green slip scheme, particularly affecting affordability, efficiency and sustainability.
The NSW Government recognised that it needed to deal with those issues and instructed the Motor Accidents Authority (MAA) to develop a compulsory third party (CTP) pricing strategy.
The MAA responded with a plan for major reform of the scheme. The plan is set out in the document, “Reforms to the NSW Compulsory Third Party Green Slip Insurance Scheme”, dated February 2013.
The document sets out the principles for reform of the scheme. It does not provide detail on how the reforms will be implemented nor does it provide a timetable for implementation.
1. The Current Scheme.
The current scheme is primarily fault based, making it complex and adversarial. The scheme is characterised by disputes over liability, extent of fault, severity of injury and the amount of compensation. The disputes result in high legal, medical and administrative costs, court action and delayed compensation.
Premiums are high, particularly relative to other states and affordability is decreasing.
Scheme inefficiencies, increasing claims frequency and uncertainty, the delay in settling claims and poor investment returns makes setting premiums difficult. Allowances for risk and future uncertainty often result in higher profits for insurers than is anticipated when premiums are set and submitted to the MAA. Flexibility to differentiate different risk groups on the basis of price is limited.
Without reform, it is likely that premiums will continue to increase. Pressure on premiums was the driver for the review and is a major focus for the reforms.
2. The Reformed Scheme.
The proposed reforms will change the fundamental nature of the scheme.
The new scheme will not be fault based. Injured parties will be entitled to defined benefits, regardless of fault. Common law will still be available to injured parties with greater than 10% whole person impairment and for those with catastrophic injuries the Lifetime Care & Support Scheme will not be affected.
The theory is that by removing the fault based nature of the scheme, disputes over liability and fault will be greatly reduced. Compensation will be prescribed and capped, again reducing the number and cost of disputes. The claims process should be simpler and claims should be paid much earlier. Dispute resolution mechanisms, a Code of Conduct for insurers and lawyers and safeguards for claimants will be implemented to further aid the process. Again, the theory is that pressure on premiums should decrease if expenses are lower and the risk and uncertainty factored into premiums by insurers is reduced.
No fault schemes
In support of the theory, the MAA cites the experience in other states as showing that no fault schemes are more efficient and effective.
More people will be entitled to compensation under a no fault scheme. It is also likely that more injured people who are entitled to claim but do not bother, or give up, will pursue their claims.
Premium regulation and increased competition between the insurers is also part of the reform plan.
The MAA will be seeking to increase its powers in the regulation of premiums, but says it will offer simplification and more flexibility in the setting of premiums. It will also look to streamline the purchase process.
The new scheme will change the claims process so that injured parties claim against their own insurer, rather than the insurer of another vehicle. This will allow insurers to differentiate green slips on the basis of service, in addition to price.
Some downsides have been identified.
Because the scheme is no longer fault based, more people will be entitled to claim.
If compensation is capped, it is likely that the capped level will not fully compensate some injured parties. When compensation is capped at inadequate levels, injured parties may be forced to rely on other personal insurance policies.
3. What is Next?
The plan is open for public comment until 5 April 2013.
Consultation with stakeholders is underway.
A timetable for implementation is to be determined.
We will provide updates and commentary as the detail of the reform unfolds.