Compulsory third party (CTP) insurance in NSW has been re-shaped many times since it was first introduced in 1942.
Early history: Why have a CTP scheme
The Motor Vehicles (Third Party Insurance) Act 1942 introduced the first CTP personal injury insurance scheme to NSW.
Before this Act, all personal injury entitlements in NSW were determined by common law:
- an injured person had to establish the legal negligence of the 'at fault' driver to receive compensation
- the injured person then recovered their personal injury costs directly from the at-fault driver. This often had devastating financial consequences for an at-fault driver without insurance
- if the at-fault driver did not have adequate financial resources, the injured person would not receive compensation
The changing world
After World War II, cars became more affordable and public road use increased rapidly. The increase in the number and severity of motor vehicle accidents and personal injuries in the first decade of compulsory cover resulted in a 370 per cent growth in policies.
By the early 1950s, the media had focused on the disparity between compensation for personal injuries resulting from a motor vehicle accident and those arising in the workplace. A parliamentary committee was appointed to review the scheme in 1955, but reforms were not implemented until a decade later.
Early attempts to contain costs
In the mid-1960s, the scheme was reformed by removing juries and having all matters heard by a judge.
In the 1970s, compulsory personal injury insurance was back on the political agenda due to high inflation, which significantly increased the cost of policies (indexed at the time).
In 1984, the first legislative attempt to directly limit claims costs, including limits on damages, was made under the Motor Vehicles (Third Party Insurance) Amendment Act 1984. However, the legislative changes did not control the rising cost of policies.
TransCover was a fault-based scheme introduced in 1987 under the Transport Accidents Compensation Act 1987, administered by the Government Insurance Office (GIO). It was a radical departure from the previous common law scheme as it set statutory benefits for pain and suffering, and medical expenses, as well as capping weekly economic loss benefits.
The Green Slip scheme
The introduction of the Motor Accidents Act 1988 restored the right to bring common law actions for damages , while introducing some restrictions, like indexed caps on general damages and exclusion of general damages for small claims. The Act provided for the payment of treatment and rehabilitation expenses as they were incurred by the injured person.
The insurance policies were called Green Slips.
The Act also re-opened the market to private insurers. Fixed premium rates resulted in a very profitable start for insurers, with an average rate of return of nearly 90 per cent in 1991. Green Slips policies were deregulated at the end of 1991 and prices quickly plummeted – reaching a low of $199 for good risks in 1993 – as insurers competed for market share.
However as prices dropped, the cost of claims was rising. By 1994 insurers were losing money and Green Slip prices began to rise: by 1995 Green Slips were nearly double the lows of the early 1990s.
The 1988 Act was amended by the Motor Accidents Amendment Act 1995 in an effort to slow the rise in the costs of Green Slips. The Act reduced access to non-economic loss (pain and suffering) benefits for minor claims. It also limited access to non-economic loss to those whose ability to lead a normal life had been, or was likely to be, significantly impaired for a continuous period of not less than 12 months.
While the cost of claims fell by 16 per cent in 1996, the success of the 1995 amendments was short-lived. The cost of pre-1995 claims (the long tail of the scheme) continued to grow, pushing up the base for future claims costs estimates and therefore Green Slip prices, although at a slower rate.
The scheme today
The Motor Accidents Compensation Act 1999 (MAC Act) came into force on 5 October 1999. In addition to promoting competition in CTP premium setting, the legislative changes were designed to encourage early and appropriate treatment and rehabilitation for those injured in a motor accident. The Act made more appropriate provision for the future needs of those with ongoing disability and encouraged the early resolution of claims.
There have been a number of enhancements to the scheme since the introduction of the MAC Act, which provide greater access to benefits for injured people. Some of the main features of the scheme today are listed below:
Early notification and treatment
The Accident Notification Form (ANF) was introduced to provide early access to treatment and rehabilitation for those injured in a motor vehicle accident. When it was first introduced in 1999, those injured and not at fault in the accident could quickly claim up to $500 for medical and treatment costs. Reforms in 2007 increased the benefit available under an ANF to $5,000, and allowed the injured person to claim for loss of earnings in addition to medical and treatment expenses. Further reforms to the scheme from April 2010 expanded the reach of the ANF to anyone injured in a motor vehicle accident, regardless of who was at fault.
Early resolution of claims
To encourage early resolution, claims must be made within six months of the date of accident. The MAC Act also imposes a duty on insurers to make a timely offer of settlement if recovery is sufficient to allow the claim to be quantified and the claimant has provided all relevant particulars about the claim. If the matter cannot be resolved between the parties, either party may take the matter to our Claims Assessment and Resolution Service (CARS).
Alternative dispute resolution
The scheme introduced CARS to provide an independent claims assessment and resolution service to reduce the adversarial nature of the previous scheme. All disputes about claims must go to CARS before being able to proceed to court. The CARS procedures are intended to be flexible, with an emphasis on dealing with matters on paper or with a conference, rather than formal hearings.
Independent assessment of treatment, rehabilitation and care needs
The Medical Assessment Service (MAS) determines all disputes about medical treatment, duties of insurers to make hospital, medical and other payments, and the degree of an injured person's permanent impairment. Assessment is by medical experts and other health care professionals who have been appointed because of their particular field of expertise.
Preserving principles of full compensation for the seriously injured
The MAC Act replaced a subjective test for entitlement to non-economic loss payments with a test that requires a person to have suffered more than ten per cent whole person impairment (WPI). The advantage of this test is that it reflects a medical finding rather than a judicial decision. The impairment threshold does not affect eligibility for any other compensation entitlements, such as current and future treatment, domestic assistance or loss of earning capacity.
Regulation of costs
Maximum costs for the provision of legal services and medico-legal services relating to motor accident claims are regulated under the MAC Act. These provisions seek to ensure that transaction costs associated with the Motor Accidents Scheme do not unreasonably contribute to the cost of CTP premiums.
Introduction of the Special Benefit for Children
The children's special benefit provides the necessary treatment, rehabilitation and care to all children under 16, who are injured in car accidents, regardless of who was at fault. The introduction of the children's special benefit was a significant change to the previous fault based scheme where a child had to prove they were injured by the fault of the driver to be able to make a claim.
Lifetime Care and Support for the very seriously injured
The Lifetime Care and Support Scheme was introduced in 2006 for children and in 2007 for adults to provide treatment, rehabilitation and attendant care services to people who are very seriously injured in motor accidents in NSW. Services are available regardless of who caused the accident. The scheme is administered by icare lifetime care and is funded by a levy collected through Green Slips.
2013 Scheme review
In 2013 the government asked the then MAA to conduct a review of the scheme. The findings indicated that the scheme was relatively inefficient and resulted in delays in injured people receiving their entitlements which led to proposed legislative change through the Motor Accidents Injuries Amendment Bill 2013. This Bill amended the Motor Accidents Compensation Act 1999 and proposed a new approach to compulsory personal injury insurance.
This Bill was later withdrawn as it did not have the support of the Upper House.
Reports, documents and submissions related to the 2013 Scheme review are available here.
2016 Scheme review
The NSW Government is reforming the Green Slip CTP scheme to better support people injured on our roads, and to reduce the cost of Green Slips for vehicle owners.
For more information visit www.greenslipreform.nsw.gov.au