TThird-party insurance for private cars in the ACT will go up $17 on July 1, a rise of 7 per cent. It is ominously above the CPI, but compared to NSW is good result. Private cars will now insure for $269, compared with NSW rates of between $370 and $400.
The difference can be put down to several factors.
NSW claims have ballooned because of aggressive lawyer advertising for small claims taken on spec. ACT lawyers do it, too, but not as aggressively. Spec cases are valuable in serious cases where injured people might have no other recourse. And some law firms shoulder the costs for a long time. This is fine provided the firm does not turn around and take unjustified extra costs.
But the trouble starts, as in NSW, when firms actively advertise and scratches-and-bruises cases are taken up on spec in the hope of easy money for “”pain and suffering”.
For example, QBE Insurance’s managing director, John Cloney, blames lawyers’ advertising and small claims in NSW for increased TPI costs and therefor higher premiums. In the ACT minor claims make up about 75 per cent of total claim costs.
The result has been, and will continue to be, that those with significant injury will suffer.
For a start, in the face of the lawyer-driven small-claims onslaught, insurers are changing their practice. They used to like settling cases quickly so injured people could get on with their lives rather than staying “”incapacitated” for as long as it took for the claim to be settled. This used to result in lower claims in the long run. Now, insurers have to resist claims because there are more minor and spurious claims. Inevitably, some serious and genuine claims will get caught in the process.
Secondly, governments respond in ways detrimental to the seriously injured. It is a question of politics. Motorists as a group (and there are lots of them) exert political pressure. That pressure is in the direction of lower premiums. On the other hand, people who might be injured in the future are not a political pressure group. No-one thinks it will happen to them. So the political pressure for better benefits is negligible.
Further, even the group of people who have been injured do not form a big pressure group for better benefits. It is too late for them, and in any event they tend to form groups based on injury type rather than cause of injury. Brain-damaged, blind, wheel-chair bound, armless, disfigured form groups around the nature of their injury, not whether it has been caused by a car or at work.
So there is very little political pressure to deal decently with people who suffer moderate to serious damage on the road.
There is great pressure to keep premiums down.
This is exactly what happened in NSW. Late last year, the NSW Parliament passed provisions to reduce benefits. Some were worthwhile, namely those directed at cutting out awards for pain and suffering for those with minor injuries. But compensation for pain and suffering was also reduced for those with significant injury. The NSW Law Society rightly points out that cutting pain-and-suffering compensation for those with significant injury is an appalling injustice. It cited the case of a boy in a coma for four days with head injury, broken fingers and nose, severe cuts and need for future facial surgery getting $30,000 under the old regime for pain and suffering and being entitled to only $10,500 under the new regime.
The importance of pain-and-suffering damages is that they help victims recover and to enjoy life in a different way to compensate for the enjoy of life that has been taken away. Justice demands it.
The wherewithal of the community to provide it through insurance premiums should not be whittled away by a myriad of claims for minor injuries with associated lawyers’ costs. And that is happening … certainly in NSW and before long in the ACT.
Governments will pander to motorists before the injured.
To make things worse, governments will engage in cost shifting wherever possible. In this instance, the Federal Government is making the demands. Earlier this year a new law came in to force. It considerably tightened up the way Medicare and the Health Insurance Commission ensured that they are repaid for any money paid out to cover the medical expenses of those injured on the roads. It has meant delays of several months in awards to injured parties and in costs being paid to lawyers and doctors while the HIC ensures it gets its cut first.
Of perhaps greatest significance is the failure of governments to let insurance companies set sensible premiums based on risk. At present in the ACT and most states, everyone pays the same for private-car third-party coverage. This is irrespective of whether you have a 40-year spotless driving record and only take the family sedan to church on Sunday or whether you have been driving for two years have had four prangs injuring 10 people, four traffic convictions and drive a turbo charged lowered rally car. It is patently absurd.
Urban Services Minister Tony De Domenico has announced he will replace the existing regulated system with one insurer … the NRMA … with an mostly deregulated competitive system. Incidentally, that comes after the company that employs former deputy chief minister David Lamont won a tender to advise De Domenico on insurance matters.
De Domenico hopes it will result in lower premiums, but the NSW experience suggests that may not follow. The NSW Law Society, for example, suggests that attempts to cut pay-out costs have resulted in the insurance industry taking extra profits. That must be resisted in the ACT if necessary by some regulation.
He is on the right track, though, in allowing competing insurers to charge different premiums for different risk groups, but he is limiting it to only a 10 per cent difference. Any competent actuary will tell you that males under 25 with convictions in powerful cars pose up to five times the risk of older drivers in sedate cars. They should pay five times the premium as an incentive to drive less dangerous cars and to avoid convictions.
If we are going to deregulate we should do it in a way that achieves the benefit of sending price signals and forcing those who do the damage to pay for it.
In any event, the aim of third-party insurance schemes is to ensure significantly and seriously injured people get treated properly. All the indications in NSW are that politicians are taking the easy path and giving preference to insurers, lawyers and motorists. The ACT must not go the same way.