Consultation Paper - CTP for taxis and hire vehicles in the point to point industry

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Executive Summary

The State Insurance Regulatory Authority (SIRA) is seeking feedback from insurers, people, and organisations involved in providing passenger services, as well as other interested stakeholders on the proposed Compulsory Third Party (CTP) premium-setting solution for the point to point (P2P) industry.

The proposed solution could replace how P2P premiums are currently determined and paid, which is based on distance travelled, and which was introduced as part of the transitional requirements under the Motor Accident Injuries Act 2017 (the Act). The transitional provisions expired on 30 November 2020. Current arrangements will continue until new requirements are implemented, which are targeted to be in place by 1 December 2021.

The proposed principles-based solution allows insurers greater flexibility and autonomy to tailor CTP premiums to the needs of their customers in different parts of the P2P industry. This will enable more equitable pricing of premiums for the P2P industry through tailored agreements that more accurately reflect the risk that a policy holder’s vehicle brings to the scheme.

This solution was developed following consultation with the P2P industry in early 2020, where it became clear that a single solution would not work for all stakeholders due to the diverse and constantly evolving P2P industry. After carefully analysing many suggestions and proposals from a wide range of industry stakeholders, a flexible premium-setting solution design emerged as potentially being the most suitable approach.

The proposed solution enables insurers and the P2P industry to negotiate how premiums are paid. Insurers are encouraged to develop innovative pricing methods, as SIRA maintains regulatory control to ensure premiums are fair and affordable.

This consultation is an opportunity for stakeholders to share their feedback on the proposed solution. Findings from this consultation will be used to refine the proposed solution, new requirements, and implementation approach. Submissions are asked to respond to the questions in section 5.

1. Proposed flexible solution

1.1 Principles and outcomes-based approach

The focus of the proposed solution is on achieving key outcomes, rather than prescribing processes or rigid rules. The diverse views across previous stakeholder feedback indicated that a single prescriptive solution is not suitable for the P2P industry and a more tailored solution is required.

The P2P industry includes policyholders and vehicles that:

• drive different distances in a policy period
• work in different operating models
• work in different sized businesses
• travel across various locations
• use technology at different levels.

The basis and method that insurers use to apply refunds or instalments to a CTP policy for taxis or hire vehicles would be submitted to SIRA for review (see section 1.3 below for more information).

Consistent with the current P2P Guidelines, the proposed requirements allow another party to pay part of the premium on behalf of the policy holder after the CTP policy is issued. There will only be one policy per vehicle and one insurer on risk.

Proposed requirements will be mandatory for insurers to offer to medium to large service providers

The proposed requirements would be mandatory for insurers to apply in their premium product offerings to taxis and hire vehicles above a certain limit. That is, vehicles engaged by authorised service providers that reasonably expect to carry out 100,000 or more fare-paid trips annually. This limit was selected to ensure that the proposed new arrangements do not result in excessive implementation costs for insurers or small service providers.

Proposed requirements could be applied to small service providers

For small service providers, the proposed new flexible requirements are designed so that service providers and insurers have the option of negotiating agreements on information sharing and premium payment methods, but it is not mandatory.

It may not be cost-effective for insurers to negotiate significant numbers of individual agreements with small service providers. These service providers may increase their bargaining power by collaborating on a single agreement that can be used by all.

Roles and responsibilities with the proposed requirements

As the proposed requirements are more flexible:

• SIRA would continue, as part of its regulatory functions, to monitor the scheme, supervise insurers’ performance and compliance with legislation, and review insurers’ premium determinations.
• The insurers’ role would include using existing or developing new operational processes or systems to implement the proposed requirements.

The information gathered through negotiated agreements with service providers and from policyholders will help insurers and SIRA identify vehicles operating in the P2P industry.

More information about monitoring compliance is outlined in section 3.2 below.

The proposed broad requirements mean insurers would be expected to justify their premium determination methods to SIRA. This must include justifying their methods for taxi or hire vehicles engaged by multiple authorised service providers and could include preparing suitable options for vehicles that move above the trips/year limit or possible new entrants to the P2P industry.

1.3 Ensuring affordable premiums and a financially sustainable scheme

Ensuring affordability with the proposed requirements

Insurers can apply a discount or loading to a premium depending on their assessment of the policy holder’s and the vehicle’s risk. SIRA sets the limits for those discounts and loadings. In addition to reviewing if premiums are fair and reasonable, SIRA would set requirements on the minimum and maximum premium payable for the P2P industry when alternate premium determination methods are used. The proposed requirements are in line with Part 1 of the Motor Accident Guidelines, which is reviewed regularly.

Table 1. Minimum limit when alternate premium determination methods are used

To ensure premiums are appropriately set, including if an insurer wishes to charge more than this amount, SIRA will review insurers’ justifications, evidence, and risk assessment.

1.     Negotiation between insurers and service providers

As the proposed new requirements apply broadly to passenger service vehicles engaged by the largest service providers, there would be a need for insurers and these providers to negotiate agreements around data sharing and payment options. Insurers can first develop their alternate methods, then negotiate and refine their methods with service providers, before submitting proposed premiums with SIRA.

This also applies to small service providers if they seek tailored arrangements with insurers, although it won’t be mandatory for either service provider or insurer.

2.    Insurers submit proposed premiums to SIRA

Insurers are required to submit their proposed premiums and justifications to SIRA at least annually for all vehicles in the scheme, including passenger service vehicles.

As outlined in the Draft Motor Accident Guidelines, which have been provided to demonstrate how these proposed new requirements would operate in practice, this would include:

• a description of the alternative P2P premium determination methods used for passenger vehicles, as agreed between the insurer and service provider
• an analysis comparing any differences in the P2P premium determination methods for taxis and hire vehicles, including how the methods are fair, affordable, not excessive, reflect risk, and how one group is not disadvantaged over another
• the factors and assumptions considered in determining the P2P premiums and how those factors were derived
• an explanation of non-technical P2P pricing considerations such as business plans, and market segmentation and distribution strategies.
• how the insurer assessed projected P2P claims frequency and average claim size for the industry, and claims for the insurer
• insurer expenses, with P2P-related costs itemised in acquisition expenses
• a comparison with the previous filed P2P average premium and the actual P2P average premium received by the insurer
• an analysis of the P2P premium impact for individual policy holders renewing their policy.
• SIRA reviews insurers’ proposed premiums based on the objects of the Act and both quantitative and qualitative explanations, including non-technical pricing considerations such as innovation. SIRA considers any non-technical pricing considerations with technical or actuarial pricing.
• SIRA may ask insurers for further information if appropriate, or to amend or withdraw the submission if it is incomplete. Insurers are encouraged to use existing mechanisms in the CTP scheme such as innovation support.
• SIRA would also review the alternate premium determination methods proposed by each insurer. Insurers may on request be required to provide a supplementary data submission related to their proposed premiums, or at any other time, data sets that include premium and trip data for third party policies for taxis and hire vehicles.

3.    SIRA reviews insurers’ proposed premiums

SIRA reviews insurers’ proposed premiums based on the objects of the Act and both quantitative and qualitative explanations, including non-technical pricing considerations such as innovation. SIRA considers any non-technical pricing considerations with technical or actuarial pricing.

SIRA may ask insurers for further information if appropriate, or to amend or withdraw the submission if it is incomplete. Insurers are encouraged to use existing mechanisms in the CTP scheme such as innovation support.

SIRA would also review the alternate premium determination methods proposed by each insurer. Insurers may on request be required to provide a supplementary data submission related to their proposed premiums, or at any other time, data sets that include premium and trip data for third party policies for taxis and hire vehicles.

2.    Insurers offer premium products to their customers

Insurers would offer their premiums and issue CTP policies to policy holders in the P2P industry according to their P2P premiums that are assessed for compliance by SIRA, and work with the service providers in line with their agreements.

3.    Data sharing and premium payments agreements

Depending on the agreements available between insurers and service providers:

• policy holders could choose to either pay an annual premium or an initial premium, or another payment arrangement
• service providers would share agreed data with insurers and may pay part of the premium amount on behalf of policy holders
• insurers may refund part of the premium amount to the service provider or the policy holder.

6. Key definitions

Authorised Service Providers are Booking Service Providers and Taxi Service Providers authorised by the Point to Point Commission to legally operate in NSW to get people from place to place in the point to point transport industry via a taxi or hire vehicle. The service provider’s role is to ensure these trips are safe and compliant with the law.

Booking Service Providers take bookings for taxis or hire vehicles to provide passenger services and communicate bookings to drivers.

Taxi networks and hire car operators who were authorised under the Passenger Transport Act 1990 are automatically recognised as booking service providers under the Point to Point Transport (Taxis and Hire Vehicles) Act 2016. Many taxi and hire car drivers would also be covered by the definition of a booking service provider because it is common for them to take bookings directly from customers and pass them on to other drivers.

fare is any kind of payment for a passenger service. The payment could be to the driver, a provider of a passenger service or anyone else.

hire vehicle means a motor vehicle that is used to provide a passenger service that is not a taxi service.

insurers are licensed CTP insurers that issue CTP policies to insure the owner or driver of a motor vehicle against liability like the death or injury to a person.

owner of a taxi or hire vehicle means the person who is the registered operator of the vehicle within the meaning of the Road Transport Act 2013.

passenger service means the transport, by a motor vehicle (other than a bus), of passengers within, or partly within, NSW for a fare. Note: a taxi service is a type of passenger service, as is a service provided using a hire vehicle.

Point to Point Transport Commission is a NSW Government agency, part of Transport for NSW, that regulates the industry and is responsible for authorising service providers and ensuring they comply with the law for the benefit of passengers, drivers, and the public. It is led by the Point to Point Transport Commissioner.

provide a booking service means carry on the business of:

• taking bookings for taxis or hire vehicles to provide passenger services (whether immediately or at a later time), and
• communicating the bookings to drivers for passenger services or providers of passenger services.

provide a passenger service means carry on the business of providing a passenger service.

provide a taxi service means carry on the business of:

• facilitating the provision of a taxi service, or
• providing a taxi service.

provider of a booking service, passenger service or taxi service means the person who provides the service.

taxi means a motor vehicle used to provide a taxi service.

taxi service means a passenger service provided by a taxi for a fare that:

• plies or stands for hire on a road or road related area, or
• is authorised under this Act to ply or stand for hire on a road or road related area (whether or not the motor vehicle is hired by other means for the purposes of providing the passenger service).