2013 PROPOSED CHANGES TO NSW COMPULSORY THIRD-PARTY SCHEME
Fallacy 1 – These are minor changes to the compulsory third-party scheme.
Nothing could be further from the truth. This is a very substantial dismantling of the CTP scheme which has stood in New South Wales for 75 years – since it was introduced in 1936. 90% of those injured as a result of motor vehicle accidents do not exceed the 10% whole person impairment threshold. That 90% will lose their right to recover damages from the negligent driver to compensate them for what can be lifetime reduction in earnings and the need for care during their lives. Many of that 90% have very serious injuries (such as spinal fractures).
For 90% of those injured, what is proposed is a return to Transcover, the discarded and unlamented scheme introduced by the Unsworth government in 1986, which was reversed by the Greiner government in 1987 on the recommendation of the Transcover Review Committee chaired by then Attorney General John Dowd.
Except that, for innocent accident victims, the current proposal is a lot worse than Transcover. At least Transcover provided lifetime payments to accident victims equal to their loss of earnings. Under the current proposal innocent accident victims would receive weekly payments for between three and five years and would then be abandoned.
Fallacy 2 – These changes are required to address rapidly escalating costs.
When Transcover was abolished in 1987, CTP premiums were initially set at $350. Twenty-five years later the cost is $550 which now includes over $100 for the Lifetime Care and Support Scheme (providing no-fault support for all made accident victims with catastrophic injury). That is an increase of less than 60% over 25 years compared to CPI increases in NSW over the same period of 120%.
Furthermore recent cost pressures largely reflect a major drop in the return achieved by insurers on the investment of premium income between receipt and payout – an important part of financing the scheme. Insurers have to invest in a very prudent way – by buying such things as government bonds –to ensure that they have the money to pay out claims as they fall due.
Over the last four years the return on investments such as Australian Government Bonds has dropped dramatically – in the case of bonds, a halving from 6.45% in June 2008 to 3.04% in June 2012.
There is no reason to believe that the return on bonds and similar investments will continue to drop dramatically. It is far more likely that the return will stabilise and gradually increase over time.
It is simply not the case that payouts to motor accident victims are skyrocketing. The Position Paper shows that only 50% of premium income over the last 10 years has found its way to accident victims and claims frequency which was almost 50% in 2000 is less than 30% in 2012.
Fallacy 3 – Motor accident victims will be better off under the new scheme.
For 90% of innocent victims of motor accidents, benefits will be slashed. Case studies attached illustrate that many accident victims who do not make the 10% whole person threshold have very serious injuries indeed. These are examples of victims being awarded as much as $900,000 by assessors appointed by the Motor Accidents Authority – damages required to compensate for a lifetime of lost earnings and need for care.
Instead it is now proposed that these innocent victims will receive weekly benefits for somewhere between three and five years – a vastly reduced sum of money. At the end of that time they will be cast adrift.
And the accident victims will have no damages available to pay for legal assistance so, in negotiating these limited benefits, they will very much be at the mercy of the claims handling staff and employed lawyers of the insurer – a quite unequal contest.
Even premium paying motorists won’t be better off. Whilst it is suggested that premiums might drop by $75, motorists could no longer rely on this scheme for protection if they or their family are injured. Prudent motorists will need to purchase an income protection policy to protect against the negligence of others at a cost of thousands of dollars per annum – for each family member. And you can’t buy such a policy for children.
Fallacy 4 – It is fair that innocent accident victims should pay for those who caused the accident.
Since 1936 the NSW compulsory third-party scheme has provided an insurance fund to compensate those injured by the negligence of other motorists.
It is now proposed that 90% of innocent victims of motor accidents should lose their right to recover damages and have their benefits slashed so that those who caused the accident can have equal rights. How is that fair?
If government has available funds to pay for a National Disability Scheme to provide a basic level of care for those with disability – regardless of fault – this is a good thing. However such schemes should never be funded out of the pockets of innocent victims.
No one believes that if their child is run down at a level crossing, their child’s right to damages for long-term working disability should be slashed so that the negligent driver can be given equal rights. Yet that is exactly what is proposed.
Fallacy 5 – Escalating legal costs are the problem.
Under the existing scheme all premium income is collected by insurers. The Discussion Paper points out that over the last 10 years only 50% of the premium dollar has been paid by insurers to accident victims. That Paper shows that of the balance 3% is paid to the Motor Accident Authority and the balance of 47% has been retained by insurers – 19% as profits and 28% as expenses.
Those expenses include 12% for “legal and investigation costs”. As this figure is carefully not broken up, one may confidently assume that the legal costs component is less than 5% of the premium dollar. This accords with anecdotal experience of lawyers acting for insurers who have had their legal costs cut significantly.
The obvious problem has nothing to do with lawyers. Insurers should not have been permitted to make huge profits averaging 19% over 10 years nor should acquisition costs (think of AAMI television advertising) be unrestricted.
If government is serious about reducing cost, then an obvious starting point would be to cap the amount retained by insurers as profit and expenses at 40% of the premium dollar and after five years require everything in excess of that 40% to be paid to the Lifetime Care and Support Scheme, thus reducing its cost to the premium dollar. If insurers have to curb their advertising in order to achieve a satisfactory profit, that is a small price to pay.
It is of course true that in addition to the costs paid by insurers to their lawyers, motor accident victims generally choose to engage lawyers to pursue their rights. The vast bulk of motor accident victims are very happy to do so because they know that insurers employ experienced claims handling staff and in-house lawyers and that the natural objective of insurers is to increase profit by reducing claim costs.
There are no statistical figures available as to what accident victims pay their lawyers but it is thought on average to be about 10% of damages recovered or about 5% of the premium dollar.
The right of accident victims to choose legal representation in a very competitive market should not be opposed by any government which believes in free enterprise. Surveys by the Law Society of New South Wales have consistently shown that the vast bulk of clients are happy with their lawyer.
Examples of Those Affected by Proposed Changes
27-year-old male road worker (married with young children) had a head-on collision with a truck which travelled onto the wrong side of the road. Legs crushed, whiplash neck injury and injury to both shoulders. Surgery to knee and two operations on shoulder. Permanent serious problems with knees, shoulders and neck. Unable to return to job as road worker. Fit for office duties. Limited educational background and employment experience limited to manual work. Found by CARS Assessor as having pre-accident earning capacity of $766 net per week and residual capacity after accident $200 net per week – ongoing loss of $566 net. Assessed by MAS as having 7% whole person impairment. Awarded at CARS hearing $915,000. Under new scheme would instead recover between $90,000 and $150,000 – reduction of about $800,000. Reference GA/DC.
38-year-old aboriginal female health worker (single with young children) injured when another vehicle failed to give way. Injuries to chest and neck and back right shoulder and hip. Off work for three months, then duties permanently modified resulting in weekly loss of $85 net per week. Less than 10% whole person impairment. Settled for $135,000. Under new scheme would instead recover between $13,500 and $22,500 – reduction of about $120,000. Reference GA/NT.
28-year-old male delivery driver (single) injured when another vehicle ran into the back of his car. Injuries to back and neck. Suffered from mental development disorder from birth and work history limited to manual employ. Earning $560 net per week. Unable to return to work but with some residual earning capacity – claim for $350 net per week. Need for limited future care. 5% whole person impairment. Settled at CARS assessment hearing for $290,000. Under new scheme would instead recover between $60,000 and $100,000 – reduction of over $200,000. Reference GA/AFJ.
30-year-old male boning room labourer (de facto relationship with young child) injured when vehicle in which he was a passenger failed to give way. Injury to shoulder and knees as well as significant head injury. Surgery to both knees and right shoulder. Assessed by MAS as 7% whole person impairment (mental disability) and 10% whole person impairment (physical disability) so not more than 10% whole person impairment. Significant restrictions in use of right arm and leg as well as forgetfulness and difficulty organising himself following accident. Earning $500 net per week. Determined by CARS assessment that would now be earning $560 net per week if not for accident and that would lose that this amount per week for the next five years and thereafter a loss of $350 net per week. Awarded at CARS hearing $605,000. Under new scheme would instead recover between $90,000 and $150,000 – reduction of more than $450,000. Reference JS/NS.