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CTP reform – What it means for you

Motorists across NSW may be able to look forward to cheaper CTP green slips from 1 July 2017. The NSW government is keen to improve the hugely inefficient CTP scheme, which was last reviewed in 1999, and has come up with a hybrid package of defined benefits and lump sums.

For the first time, the scheme will protect 7,000 road users each year who are at fault. They will be able to get defined benefits, but not lump sums. The current scheme uses common law to negotiate lump sums for people with minor or severe injuries and mostly, but not entirely, depends on who is at fault. It takes considerable time and money to work out who is at fault and to settle on a payout.

The new CTP green slip scheme will be a “hybrid” of defined benefits and lump sums:

  • Defined benefits to people with less severe injuries, regardless of whose fault
  • Common law lump sums to people with serious injuries but not at fault.

Why the change?

During the discussion and research period, everyone agreed the current CTP scheme is inadequate, inefficient and too expensive.

Only 45% of every green slip goes towards injured road users. The rest pays for the scheme, insurer profits, legal fees and medical expenses. Yet the price of green slips has risen 70% since 2008 and shows no sign of abating.

A rapid increase in claims for less severe injuries, like whiplash, means lower level injuries make up 40% of claims. Fraud is said to cost insurers a massive $2 billion a year.

The current scheme is essentially adversarial because, for many claims, there is debate over fault, degree of fault, level of injury and amount of compensation. Claims settlement can be expensive and protracted by legal debate and extensive medical assesments. Insurers are required to make provisions for payouts many years after the accident occurred.

The government paper, On the road to a better CTP scheme, had four priorities for reform: how much of each green slip is spent on injured people, the time it takes to pay them, potential for fraudulent or exaggerated claims and affordability for all motorists.

Why the hybrid option?

The hybrid option was the most popular among stakeholders because it addresses all four priorities for change:

  • Proportion of benefits for injured people – Aiming for 60% (45% now) share of premiums. Seriously injured people could receive 70% (50% now) of premiums, compared to 63% in 2001.
  • Timeliness – Aiming to pay 55% of defined benefits by second year after accident, compared to current 22% of scheme benefits by second year
    • 45% (6% of scheme benefits now) of defined benefits to be paid in first year
    • Another 10% (16% now) in second year.
  • Fraud and exaggeration – Lump sums will be paid only for the seriously injured who are not at fault, compared to all claims now. The regulator will have more powers to fight fraud.
  • Affordability – A “significant reduction” in the average price of green slips, compared to what could be an extra $90 in 2016.

What are defined benefits?

The idea of defined benefits is that anyone injured in a car accident, whether at fault or not, will receive a fixed amount for their injuries. This includes:

  • Benefits for loss of earnings and medical expenses for up to 5 years
  • Commercial care expenses for up to 2 years, sometimes longer.

What is common law?

People who are seriously injured (more than 10% Whole Person Impairment) but not at fault, can go to court to negotiate a lump sum. Exemptions could apply if they have done something illegal.

Participants in the Lifetime Care and Support scheme (introduced 2006-7) will still receive treatment, rehabilitation and care through that scheme.

New roles for the regulator

Introducing the hybrid option is the main plank of CTP reform, but not the only part.

Another change is to beef up the role of the regulator, State Insurance Regulatory Authority (SIRA, was the MAA). It will step up its role in insurer premium setting, market practices and management of claims.

SIRA will get extra powers to increase competition, cap acquisition and other insurer expenses, and reduce their profits. It will access real-time databases, digitally linked, so it can respond quickly to emerging trends.

Other changes that could affect you

Bike riders – The new CTP scheme will cover pedestrians who are injured by bicycle riders, as long as no other insurance is available to them.

Resolve disputes faster – Independent review and dispute resolution service will be non-adversarial and encourage mediation.

Lower legal costs –  Legal involvement should reduce dramatically when only seriously injured people can claim lump sums.

Support and advocacy – Especially for people on defined benefits.

Fair prices for all – Some riskier road users, such as taxi drivers, pay much higher premiums. More flexible premium setting and a “risk pool” will help boost insurer competition and provide a fair price for all.

Transition period

Like any big changes, they won’t happen overnight. The reforms will put in place transitional arrangements for the first few years of the scheme so insurers are not unfairly advantaged or penalised.

There will be a statutory review of the new CTP scheme after 3 years. It will investigate whether there is still a difference between the profits insurers propose and the profits they actually make, as well as whether the new scheme is living up to its promise.

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