Australia: Compulsory Third Party (CTP) insurance scheme options paper released in NSW

In brief - NSW government seeks submissions to reform proposals

In response to the 2013 CTP Green Slip Roundtable and feedback that the scheme "requires improvement", the NSW government has announced a consultation process to reform the state's CTP insurance scheme. It has recently released the On the road to a better CTP Scheme options paper which outlines proposed improvements. Submissions must be lodged by Friday 22 April 2016.

CTP insurance protects not-at-fault injured parties from uninsured drivers

CTP insurance (also known as the "Green Slip") is mandatory in New South Wales. It provides third party personal injury cover in the event of a motor vehicle accident. CTP protects not-at-fault parties injured as a result of motor vehicle accidents from the perils of uninsured drivers.

It is a modified free market scheme, in that authorised for-profit insurers compete for premium with limited scope for personal rating. The policy is fixed by the legislation and cannot be amended.

Reforms include improved proportion of benefits, timeliness of payments, affordability and reduction in fraud

The options paper details four key objectives for a reformed NSW CTP scheme.

Increase the proportion of benefit provided to the most seriously injured road users

Under the current scheme, only around 45% of premium collected is awarded to injured persons. The common-law fault-based design requires driver fault to be established. This leads to delay, investigations and other legal costs, and potentially higher profits for insurers, who can raise short-term prices to balance the uncertainty of having to prove fault.

Reduce the time it takes to resolve a claim

In NSW, the majority of payments are made between three and five years after the motor vehicle accident occurs. This is a significant lag compared to other statutory benefit and CTP schemes in other Australian states.

A lack of timeliness may inhibit injured persons from having access to funds at the point in time when they most need them.

Reduce opportunities for claims fraud and exaggeration

Additional costs arising from fraudulent claims may be passed on as increased prices for Green Slips. New South Wales has one of the lowest penalties for fraud of any CTP scheme in Australia, with a maximum penalty of only $5,500 and/or 12 months' imprisonment.

The government has announced the formation of a CTP Fraud Taskforce to help combat this issue.

Reduce the cost of Green Slip premiums

The provision of higher benefits in NSW carries higher premium prices. Long-term prices are forecast to rise as much as 20% in the coming year, with Sydney metropolitan drivers paying the highest premiums in Australia, at an average of $637.

Moving from current fault scheme to no-fault also under consideration

The options paper also outlined additional policy issues to be considered as part of the process of reforming the CTP scheme, namely:

  • Whether the current fault scheme (ie driver fault must be proved) or no-fault scheme is best.
  • Extending CTP cover to people not currently covered (eg "at-fault" drivers and persons injured by non-motorised vehicles, such as bicycles).
  • Whether a first party scheme (ie injured person claims against their own insurer) or the current third party scheme (ie injured person claims against at-fault driver's insurer) is best.
  • Profit of CTP insurers and lack of competition (there are only four CTP insurers in NSW).
  • Whether the CTP scheme should remain privately underwritten, and if so, whether a risk pooling arrangement is appropriate.
  • Fairness of the current method of accounting for contributory negligence.
  • Adequacy of lump sum settlement payments (especially as it may encourage fraud of the scheme).

A hybrid or fully no-fault, defined benefits scheme among options for reform

Four reform options have been presented as non-exhaustive alternatives to the current NSW CTP scheme:

Source: On the road to a better CTP scheme, NSW government, p.16

The options paper suggests that Option 3 or Option 4 will be best placed to meet the objectives of a reformed CTP scheme.

Option 3 introduces defined statutory benefits for anyone injured in a motor vehicle accident, irrespective of fault, while retaining common law benefits for the most seriously injured.

Option 4 completely removes the assessment of fault and provides defined statutory payments instead of lump sum payments.

Given the evident political will to overhaul and improve the current CTP scheme in NSW, it seems likely that the CTP system is going to be subject to further structural change. Evidence from other Australian states should be helpful in assisting stakeholders to consider the options and the possible consequences.

Amanda Cefai Toby Blyth
Insurance and reinsurance
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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