The ACT is a vulnerable little polity. And to do well in this grim competitive Federation our government has to be smart. If it is dumb, the citizens pay.
The TAB fiasco shows how vulnerable the ACT is in the face of the big states. This week another fiscal Achilles heel has been revealed: compulsory third-party car insurance. This insurance covers drivers at fault who are sued for causing personal injury.
This week’s announced $18-a-week increase to apply from July 8 is a trivial inconvenience compared to what might happen in the future.
The increase brings premiums to $178 per car per year. The NRMA says the real cost is $266. The balance is being paid by eating into reserves. That sounds like a typical ACT Government policy in the face of a looming February election: don’t upset the natives with a bit of fiscal responsibility. To the Government’s credit, however, it has put out an issues paper on what should be done. To the community’s discredit, the response has been negligible.
I suspect some real injustice is going to be done to car-accident victims here. Several factors will cause that.
First, premiums are paid by virtually every voting adult in the ACT whereas there are only a few accident victims. The political fall-out of raised premiums is greater than the political fall-out from a few deprived car-accident victims.
Second, car-accident victims to not form a natural politically correct minority that has to be pandered to like single parents, gays, Aborigines, public-housing tenants and so on. They tend to battle it out alone, with their families or get support from groups that coalesce around the nature of the injury rather than the nature of its cause: the brain-injured (whether caused by car accident or playground equipment); the paraplegics (whether caused on the roads or by disease) and so on.
Third, the NRMA, which to date has played a fairly laudable role in the ACT road-accident scene, is about to undergo profound change. The NRMA is now a mutual society with $2.2 billion in assets. A proposal is being put to members to convert it to a public company with existing members getting $500 worth of shares each. (NRMA members will no doubt accept this bribe which will help existing directors stay in the driving seat.)
As a profit-making company, the NRMA’s attitude to third-party insurance in the ACT could easily change. Loud denials now from NRMA management should be heavily discounted because now they are speaking as mangers of a mutual society; in the future they will be speaking as managers in an entirely different legal entity with an entirely different ethos (returning profit to shareholders; not service to members).
At present the NRMA is the only third-party insurer. The other companies have pulled out. What if the new profit-driven NRMA were to turn its back on the ACT third-party business unless there were extra loot in it for them?
That might be tempered a little by the desire to retain the goodwill of customers for other insurance, but the risk is there.
In short, several factors point to imposing greater burdens on car-accident victims, just like the other states.
The issues paper concentrates on cutting benefits to car-accidents victims along the lines of other states. Other states variously cap damages for lost earning power, eliminate or cap them for pain and suffering and apply thresholds.
But the ACT should be smarter than that.
The one-premium-for-all system is just dumb. It is like the community-rating system in health insurance. Health insurance is not compulsory so the young (who do not make as many claims) vote with their feet. Third-party insurance is compulsory so the mature (who do not make as many claims) have to put up with it.
In both cases, of course, the system is creaking. Any sensible insurance scheme matches premium with risk. A good system of higher premiums for new drivers, young drivers and those with traffic convictions and no-claim bonuses for those with clean driving records in itself would go a long way to preserving full benefits for victims.
There would be an incentive for good driving. Bad young (mainly male) drivers with bad accident and conviction records might find their third-party premiums price them of the road.
Drivers would be more politically sympathetic to a scheme which applied premiums rationally instead of across the board.
Another possibility would be to load the insurance costs on to petrol so the cars that travel most and are greater risks pay more. But people would just fill up in Queanbeyan.
The issues paper points, correctly, to a problem with minor claims. It says there have been an increase in minor claims (under $25,000) to 75 per cent of claims which take 40 per cent of total payouts.
Perhaps one reason for this is that since lawyers have been able to advertise you see lots of lawyers’ advertisements along the lines: “”Injured? We can help you get a big pay-out for a minor injury. It is as easy as falling off a bike. Ring us today.”
The paper suggests a threshold, especially for damages for pain and suffering. Fine. People should be able to bear minor injuries, though they should be able to get compensation for lost work-time and medical expenses, which could mostly be done administratively. A good way to enforce the threshold would be to pay no legal bills if the threshold is not reached. That would discourage lawyers from egging on people with minor injuries to sue.
There are some nasty suggestions in the paper that damages should be capped, that an automatic percentage be deducted because the common law is too generous and that people rally around in adversity, and that workplace sick pay should be used up first (and employers’ cop higher workers’ compensation premiums).
But if you are an innocent road-user and someone seriously injures you, why shouldn’t you get full compensation to put you back (insofar as mere money can do that) where you were before you were injured? And why should the careless and reckless drivers who cause the injuries be rewarded with lower premiums that do not reflect their true risk.
True, the ACT’s present common-law system does have defects. Lump-sum damages paid months or years after the accident are a disincentive for people to rehabilitate and they are a lottery because courts have to estimate a life-expectancy, and the injury could get worse or better after damages are paid. It would be better to have a system of periodic payments.
Further, the fault system leaves a lot of injured people in the cold. Rather than cutting premiums, they should be raised to cover at least to some extent those people seriously injured where no-one (or the injured person himself) is at fault. That way the general community ( Medicare etc) does not have to pick up the tab for damage done by cars.
The danger is that once the reserves are gone and a corporatised NRMA starts insisting on profits, the ACT Government will have to be seen to do something to keep premiums down.
Expect to see reforms that will put the more numerous drivers ahead of the fewer and more disparate victims. Moreover, expect to see a “”package” of reforms announced with political fanfare. This will indicate to gullible voters that a thorough job has been done and the problem fixed. Whereas in fact it precludes the assessment of the effectiveness of each individual reform when the whole system is undergoing change.
I would like to expect step-by-step reform, but experience says that is far too hard and far too politically risky.