Changes to Queensland’s compulsory third party (CTP) insurance system are on the horizon, as figures show insurance companies are raking in impressive “super profits” every year.
Queensland operates a common law ‘fault’ based CTP scheme, which provides motor vehicle owners, drivers, passengers and other insured persons with an insurance policy that covers their liability for personal injury caused by, through or in connection with the use of the insured motor vehicle in incidents to which the Motor Accident Insurance Act 1994 (MAIA) applies. The CTP insurance is integrated as a compulsory condition of motor vehicle registration in Queensland.
For the injured third party, it provides access to common law rights, whereby the injured person has a right to seek monetary compensation from the person ‘at fault’ for the personal injury sustained and associated losses. As a fault based scheme it requires proof of liability, meaning the injured person must be able to establish fault (either wholly or partly) as against an owner or driver of a motor vehicle.
The scheme, worth $1.4 billion in annual premiums, is regulated by the Motor Accident and Insurance Commission (MAIC). CTP insurers set their own premium rates every quarter, within the limits set by the MAIC.
It is understood and accepted by the Regulator that insurers are entitled to expect a fair and reasonable profit for the financial risks they bear so that the market remains sustainable and competitive.
According to the MAIC, the system was designed so insurers have an 8 per cent profit “allowance” in premiums. However, independent estimates reported by the regulator show that over the last five years, insurer profit is in the range of 25 per cent to 31 per cent. The gap between the two figures is called a “super profit”.
Queensland lawyers are concerned that insurance companies are making too much profit through the CTP scheme, raking in super profits estimated to be between 3 and 4 times greater than intended by the scheme design.
However, insurers say that profitability statistics from prior years do not indicate their future CTP Scheme performance and maintain that their pricing decisions have to take into account the risk of future adverse events.
Figures show that NRMA, QBE, Allianz, and Suncorp are pocketing a 19 cent profit in each green slip dollar – more than double what the companies predicted when setting their prices.
The MAIC is currently reviewing the Queensland CTP Scheme with an aim to improve its affordability, efficiency and fairness. The MAIC has identified the lack of price competition and strong insurer profitability as key issues.
As part of its review, the regulator has released a discussion paper and called for community and industry feedback.
In a submission to the MAIC, the Australian Lawyers Alliance said: “the biggest issue currently facing the scheme is the unsustainable profit levels of the private insurers” and encouraged the regulator to “act to adjust the operation of the scheme to bring these profits into line with community expectations.”