The new Motor Accident Injuries Bill 2017 was passed by both Houses of Parliament on 30 March 2017. The bill introduced a new New South Wales compulsory third-party (CTP) insurance scheme for people who are injured or lose their life as a result of a motor accident.
A notable amendment to the bill introduced to Parliament was a lower tolerance level on “excess” insurer profits (section 2.25). If the average realised profits of insurers are more than 2% (reduced from 5% in the original bill) above average filed profits, then the State Insurance Regulatory Authority (SIRA) must conduct a review of insurers premium income. SIRA must then determine whether to adjust premiums and fund levies to avoid excess profits. This will include whether SIRA directs insurers to make payments to the Motor Accidents Operational Fund to address excess profits. The 5% tolerance level for “excess” insurer losses remained unchanged.
Although anticipated to start on 1 December 2017, the Motor Accident Injuries Act 2017 will commence on a day(s) to be appointed by proclamation. It will supersede the Motor Accidents Compensation Act (MACA) 1999. The new Act will only apply to motor accidents occurring after the commencement of the Act. This will result in insurers handling two portfolios of claims. One of the portfolios will be the claims made under MACA 1999, and the other portfolio will be claims made under the new Act.
The shift to a new hybrid scheme involving statutory benefit payments for weekly income support and medical treatment and care, and a much greater reliance on insurers’ internal dispute resolution processes, will present significant challenges and opportunities for insurers.
Major features of the Motor Accident Injuries Act 20171
The new CTP scheme under the Motor Accident Injuries Act 2017 will give people injured in accidents access to statutory benefits in the form of weekly income support and medical treatment and care. The focus will be on rehabilitation of injured road users so they can return to good health and work sooner.
The new Act establishes a hybrid scheme. It provides statutory benefits for injured road users with soft tissue or minor psychological injuries, regardless of fault, while retaining the right to claim modified common law damages for those able to establish fault. Part 3 of the Act includes provisions for a statutory income, medical and care benefits for up to six months for all injured people, without any need for fault to be proven. At the moment, at-fault drivers can only claim a maximum of $5,000 under the accident notification form.
When the only injury is soft tissue or minor psychological injury, statutory benefits for loss of income and treatment and care will be available for up to six months. All other injured people who are not mostly at fault will be entitled to additional income support and treatment and care. Under division 3.3, people with moderate level injuries, up to and including 10 per cent whole person impairment [WPI] will receive regular income benefits of up to 95 per cent of pre-injury weekly earnings for the first three months after an accident and up to 80 or 85 per cent of pre-injury weekly earnings after that. The maximum weekly payment will be indexed and capped at 2½ times average weekly earnings, or $3,853.
Income benefits will be paid for up to two years for injured people not mostly at fault. However, if an injured person has continuing needs beyond two years, and has made a common law claim, income benefits will be paid for up to three years. Income benefits will be subject to the injured person's capacity to earn income, with insurers able to regularly assess the person's earning capacity. If there is contributory negligence, such as not wearing a seatbelt or helmet in the case of a motorcyclist, payments for loss of earnings or earning capacity are subject to being reduced after six months.
For injured people who are not mostly at fault and do not have soft tissue or minor psychological injuries, reasonable medical and commercial attendant care costs will be payable for life, if needed. Insurers will be responsible for claimant medical and care costs for up to five years and the Lifetime Care and Support Authority will be responsible for those costs after five years.
Gratuitous care by family and friends will not be payable. For people with more serious injuries— above 10 per cent of whole person impairment [WPI]—statutory weekly benefit payments will be paid for up to five years if a common law damages claim has been made. People with such injuries will also be entitled to medical treatment, rehabilitation and commercial care for life.
If someone loses their life in a motor accident, part 3 provides statutory benefits for reasonable funeral expenses. Claims for economic loss can also be made where dependents of the deceased can prove another driver was at fault. Part 4 of the Act retains access to modified common law damages for injured people who can establish another driver was at fault, and do not have soft tissue or minor psychological injuries. This means people with injuries less than or equal to 10 per cent of whole person impairment will continue to be able to make a claim under common law for economic loss. Those with injuries above 10 per cent WPI will be able to make claims for economic loss as well as pain and suffering. The cap for non-economic loss payments for pain and suffering will be $521,000—which is the current cap under the existing scheme—and indexed. A person with ongoing needs will remain entitled to defined medical and care expenses for life, if needed.
It is envisaged that the new Act will reduce costs in a number of ways. The introduction of statutory and no-fault benefits under part 3 will reduce legal costs and the adversarial nature of the scheme because injured people will no longer have to lodge a common law damages claim to get compensation for their injuries. Costs will be further reduced by the removal under part 4 of access to common law damages for soft tissue and minor psychological and psychiatric injuries, which have contributed to a large spike in scheme costs and reduced the proportion of benefits going to those with more serious injuries.
The Act also tackles cost by allowing the regulation of legal fees that injured people can be charged. It allows for both the fixing of maximum legal costs by reference to the amount recovered by the claimant and a fee-for-service model.
The introduction of statutory benefits should allow insurers to price risk more accurately.
Part 2 of the new Act confirms the regulator's power to impose a risk equalisation mechanism to ensure a more equitable distribution of customer risk across all the insurers. The Government expects that this will lead to more price competition and encourage potential new market entrants. SIRA is empowered to collect and regularly publish a range of insurer profit, filing and loss ratio information. Part 2 of the new Act boosts the regulator's powers to regulate premiums, including the ability to reject a premium an insurer proposes to charge if it is deemed excessive or does not comply with the premium guidelines. As part of this, division 2.3 gives SIRA additional powers to place limits on what it considers unreasonable assumptions by insurers in relation to superimposed inflation and insurer expenses.
Division 2.3 of the Act establishes a new premium-setting process for green slips for taxis and rideshare vehicles which aims to create a more level playing field for point-to-point transport providers. Premiums for taxis and rideshare operators will comprise a base premium with a top-up or refund based on their vehicle usage to ensure CTP insurance accurately reflects a motor vehicle's risk and usage.
The Act is also designed to reduce fraudulent and exaggerated claims. Fraud and exaggeration currently costs New South Wales motorists as much as $400 million per year and adds about $75 to the cost of each green slip2. Parts 3 and 4 of the Act are expected to substantially reduce opportunities for fraudulent and exaggerated claims by providing statutory benefits for soft tissue and minor psychological injuries for up to six months and removing access to the common law system. Part 10 of the Act gives the regulator stronger powers to investigate fraud as well as for prosecution and enforcement, and penalties will be increased for people abusing the system.
Part 7 of the Act establishes a new and enhanced dispute resolution model. If disputes do arise in a claim, this new model requires much more robust decision-making by insurers, and provides an independent dispute resolution service for disputes to be resolved independently, flexibly, fairly, cost-effectively and quickly. SIRA will also establish a claimant support service to provide injured people with assistance with completing and lodging forms as well as advice on claims and dispute processes. Part 10 of the Act will introduce enhanced data collection and reporting, and real-time performance monitoring of insurer behaviour and claims experience, to enable SIRA to better regulate the scheme.
1Second Reading, MOTOR ACCIDENT INJURIES BILL 2017, Mr VICTOR DOMINELLO ( Ryde—Minister for Finance, Services and Property), 9 March 2017.
If you would like assistance to ensure your entity complies with the Act, contact any of our Directors for an informal chat.
The author of this blog is Dr Steve Clough, Sector Lead: Insurance at Centium. He is a highly experience and skilled regulatory and compliance Executive with 20 years' experience in senior leadership roles with peak regulatory authorities.