Proposed reforms to NSW CTP scheme to disadvantage accident victims and safeguard insurers' profits
People injured in vehicle accidents in NSW are heading for a far worse predicament under changes to compulsory third party (CTP) insurance outlined in a state government reform position paper, On the road to a better CTP scheme, which was released in March 2016.
Following consultation with stakeholders, the government released a subsequent paper, CTP reform consultation observations in early September 2016.
The state government has revealed that it intends to implement a scheme that drastically cuts existing benefits to people injured in motor vehicle accidents, and cuts them out entirely for the vast majority of injured people.
Accident victims with "low severity injuries"
Under the proposed scheme, those assessed as having "low severity injuries" that fall below what is considered ten per cent impairment will not have medical expenses paid after five years or care costs paid after two years.
These so-called minor injuries include muscular back injuries, whiplash, shoulder tendon tear and shinbone fracture causing loss of ankle mobility that leaves the person unable to work. The category of people with so-called "low severity injuries" comprises about 90 per cent of the injured. These are people who would be unable to seek significant lump sum damages under the government's proposed scheme.
Benefits to be cut off even if the injured person cannot return to work
The Law Society of NSW has recently released a policy paper, CTP changes – adding insult to injury, which points out that the government's proposals will be particularly unfair on those who had a long working life ahead of them before they had the accident.
Many people whose health is so badly affected by an accident that they are unable to return to work will nevertheless be considered to be below the threshold of ten per cent of "whole person impairment", which means that their benefits will be cut off after five years, regardless of whether or not they are able to return to work at that point. The NSW government's proposed changes to the CTP scheme would abandon these people to their fate.
Reforms set to strengthen the position of insurance companies
One of the fatal flaws in the government's proposed new CTP system is that it hands all decision-making power to the insurance companies to rule on how severely injured a person is. And obviously, the insurers have a vested interest in paying out as little as possible.
According to the government's own data from the March 2016 position paper, CTP insurers have historic average annual profit margins of 19 per cent. A 2015 report by the State Insurance Regulatory Authority (SIRA), Report of the Independent Review of Insurer Profit within the NSW Compulsory Third Party Scheme, noted that insurers' actual profit margins have been as high as 30% in some years since the year 2000.
The SIRA report points out that insurers' predicted profit margins have consistently been within the 6-9% range, considerably underestimating their ultimate profit margins for almost every year over the previous 14 years. There is no disputing the fact that insurance companies are highly adept at protecting their own interests and maximising their earnings.
Injured people to lose right to legal representation
Another disturbing aspect of the government's proposed reforms is that people who have been injured in a motor vehicle accident will have no right to legal representation and will be unable to sue. Instead, they will have to deal with the insurance giants on their own.
Government's motives for introducing the proposed CTP scheme?
The government claims that it wants to cut the cost of the CTP scheme because it found that $400 million per annum was lost to fraudulent and exaggerated claims, adding $75 a year to the cost of an average green slip.
While the government's desire to reduce expenditure is understandable, surely it would be better to crack down on fraudulent claims and re-examine the huge profits made by the insurers, rather than punish those who are injured in vehicle accidents through no fault of their own.
The end effect will be to move injured people onto social security benefits and Medicare, forcing taxpayers to pick up the bill. This is a high price to pay for the ability of the NSW state government to be able to announce a reduction in the cost of green slips before the next state election.
Futility of a CTP scheme that does not look after people injured in motor vehicle accidents
When compulsory third party insurance was introduced in NSW in 1942, the point of the scheme was to ensure that all drivers would have insurance, so that anyone who was injured in a motor vehicle accident would receive compensation.
Before this time, a person who was injured in an accident had to establish the negligence of the "at-fault" driver and recover their costs directly from that driver, which could have a disastrous financial impact on a driver who did not have insurance. If the at-fault driver had no insurance and no money, the injured person would receive nothing.
If we now move to a situation in which the CTP scheme does not look after accident victims, there is little value in having the scheme at all. It is completely missing the point.
Those who would really be protected by the proposed reforms are the insurance companies – they would lose nothing and it would cost them nothing. Indeed, the scheme would safeguard a significant income stream for the insurers, all at a great cost to the community.
I quote from the policy paper of the Law Society of NSW:
A no-fault scheme is financially risky and would not be underwritten by the NSW government. The government's proposals would generate more claims, cost more to administer and pay out less to injured motor accident victims. No model exists for a "no-fault" scheme to be privately underwritten, as would be the case in NSW. If the scheme failed, insurance companies could simply walk away.
Food for thought indeed.
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