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Introduction and summary
During the September 2017 quarter, the NSW Compulsory Third Party (CTP) scheme was governed by the Motor Accidents Compensation Act 1999 (the Act). The Green Slip market currently comprises six licensed insurers operated by four entities: Suncorp (AAMI and GIO), Allianz Australia (Allianz and CIC Allianz), NRMA and QBE. The market is split into two segments: retail and non-retail. AAMI, GIO, Allianz and NRMA compete mainly in the retail segment, CIC Allianz competes in the non-retail commercial vehicle market and QBE operates in both market segments.
Section 172 of the Act requires SIRA to inform each licenced insurer of their premium market share on a quarterly basis. Additionally, SIRA provides detail average Green Slip price trends and claims reports to insurers every quarter. The claims trends include aggregate claims numbers and claims costs, illustrating the claims experience of the current scheme.
During the September 2017 quarter, all six insurers implemented new prices that took effect from 1 July 2017. Further to this, NRMA and CIC Allianz filed for reductions in their prices to take effect from 4 September 2017 and 1 October 2017 respectively. As a result of these filings, GIO lost its market best price lead during the September 2017 quarter to QBE who offered the best price of $588 for Sydney private passenger vehicles. Despite NRMA’s best price being $6 above QBE, NRMA continued to dominate the market with a share of 30.2 per cent due to its brand impact, branch network and product bundling.
As a result of the NSW CTP reform, all insurers lodged premium filings with SIRA during the September 2017 quarter which SIRA approved to take effect from 1 December 2017 in accordance with the Motor Accident Injuries Act 2017. NRMA will be offering the best price of $468 for a private Sydney passenger vehicle from 1 December 2017.
Green Slip premiums and market trends
Insurer premium filings
Insurers set their own Green Slip premiums in a competitive market, within part 2.3 of the 1999 Act and the Motor Accidents Premiums Determination Guidelines approved by the SIRA Board. Insurers can file proposed premiums with SIRA at any time and there is no limit to the number of filings an insurer may lodge each year.
Under the 1999 Act, SIRA may only reject a premium filing if it is of the opinion that the premium:
- will not fully fund the present and likely future liability of the insurer
- is excessive having regard to actuarial advice and to other relevant financial information
- does not conform to the Motor Accidents Premiums Determination Guidelines (PDG).
The scheme actuary, Ernst and Young, and SIRA internal analysts review the assumptions underpinning each premium filing. The assumptions include projected industry and insurer’s claims costs, economic factors, expenses, profit loading and insurer’s forecast market share.
Adjustments to the Medical Care and Injury Services
The MCIS levy is made up of a Motor Accidents Fund (MAF) levy and Lifetime Care and Support (LTCS) levy. SIRA Board is able to review and adjust the MAF component of the MCIS Levy as required under s.213 and s.214 of the Act. SIRA sets the levy in order to generate a balanced budget outcome, while maintaining a preferred prudential reserve target.
The LTCS levy component could also be adjusted by the Insurance and Care NSW (iCare) Board of Directors to meet the Board’s target funding amount for a specified period.
There was no change to the MCIS levy rates during the September 2017 quarter.
During the September 2017 quarter, all six implemented new Green Slip prices that took effective from 1 July 2017. Table 1 shows the changes in best prices that occurred during this reporting quarter. The best price is the lowest CTP premium price (including levies and GST) offered by each insurer to a new retail customer, aged 30 to 54, for a private use passenger vehicle garaged in Sydney.
GIO lost its market best price lead during the September 2017 quarter to QBE who offered the best price of $588 for Sydney private passenger vehicles. Despite NRMA’s best price being $6 above QBE, NRMA continued to dominate the market with a share of 30.2 per cent due to its brand impact, branch network and product bundling.
Table 1: Sydney car best price changes
|September 2017 quarter ($)||594||590||595||611||588||663|
|June 2017 quarter ($)||640||606||622||623||613||673|
|March 2017 quarter ($)||640||606||622||623||613||673|
|September 2017 quarter price change $ (%)||-46 (-7.2)||-16(-2.6)||-27(-4.3)||-12(-1.9)||-25(-4.1)||-10(-1.5)|
|June 2017 quarter price change $ (%)||0 (0)||0(0)||0(0)||0(0)||0(0)||0(0)|
Premium market share
Insurers are required under the Act to submit information on insurance premiums to SIRA at the end of each quarter. This information is used to determine the premium market share for each insurer and to report trends in average premium levels over time.
The total amount of premiums collected (excluding MCIS levy and GST) during the year to 30 September 2017 was $2.65 billion. This represented an increase of around 7.7 per cent on the previous year ($2.46 billion).
Table 2 shows Allianz and QBE gained 0.7 per cent market share each when the September 2017 quarter premium share is compared to September 2016 quarter. GIO, AAMI and CIC Allianz lost 0.8 per cent, 0.5 per cent and 0.1 per cent market share respectively compared to September 2016 quarter.
NRMA market share remained unchanged at 30.2 per cent when the September 2017 quarter premium share is compared to September 2016 quarter.
Table 2: Insurer market share in the NSW CTP scheme
Premium share % for individual quarters (s.172)
|Insurer||4 quarter average|
Graph 1 shows the proportion of premiums collected in the 12 months to the quarter end. Based on rolling twelve month periods this graph reduces any volatility that exists from quarter to quarter due to the seasonal renewal of large fleet vehicles and shows smoother trends in market share.
Generally, AAMI, NRMA and QBE market shares continue to trend downwards over the past 5 years, NRMA still remains the insurer with the largest market share. GIO and Allianz continued to gain market shares over the past 5 years while CIC Allianz market shares appear relatively stable.
Graph 1: Premium market share (rolling 12-month) comparison
In the September 2017 quarter (Graph 2):
- The average premium (including MCIS levy and GST) paid by Sydney passenger vehicle owners was $695, an annual increase of $32 (4.8 per cent). However, there is a reduction of $26 (3.6%) compared to the June 2017 quarter figure of $721.
- The average premium paid by Country (regional) passenger vehicle owners was $473, an annual increase of $5 (1.0 per cent). However, there is a reduction of $18 (3.7%) compared to the June 2017 quarter figure of $491.
The observed general upward trend in premiums is mainly due to:
- increasing claims frequency even though it appears to decline in the last four quarters (Graph 5). Insurers factored in the reduction in claims frequency during the past four quarters in their 1 July 2017 premium filings which has contributed to reductions in average premiums in the September 2017 quarter compared to the June 2017 quarter;
- reduction in bond yields following the Global Financial Crisis to the historically low levels sustained since 2015, resulting in low investment returns (Graph 3); and
- inflationary increases to claim costs such as medical treatment, economic loss calculations and salary-related expenses.
While the increase in the number of small claims reduces the overall average claims cost, the long term increase in claims frequency means the overall effect is an increase in the cost per policy. However, if the reduction in claim frequency in the last four quarters continues, these cost pressures may ease resulting in reductions in Green Slip prices.
Graph 2: Average premium (quarterly trends)
Graph 3 shows movements in the five-year Commonwealth Government bond yield since the inception of the current CTP Scheme 17 years ago.
Graph 3: Trend in five year commonwealth bond yield to 2 November 2017
Low bond yields have a negative impact on the investment returns of insurers who invest collected premiums in the bond market. The yield on the five-year Commonwealth Government bond has been at historically low levels in recent years and material changes are not expected in the short term. Movements in five-year bond yields are generally consistent with movements in the yields of other maturities.
Number of claims
Newly reported claims
Claims trends are measured from 5 October 1999, when the Motor Accidents Compensation Act 1999 came into effect. The scheme actuaries complete an annual valuation of the scheme in June each year to provide projections for the number of claims expected to be reported. In the September 2017 quarter, the actual number of newly reported claims since the previous quarter, June 2017, was 4,080. This is 7 per cent less than the 4,393 anticipated from the June 2017 actuarial valuation of the scheme. Some of these newly reported claims were lodged with respect to past accident quarters. The number of claims reported from accidents in the September 2017, was 2,143, which is in line with expected number of claims as the impact of the November 2016 legal cost regulation, market response to Strike Force Ravens (note 1), and implementation by insurers of new claims management practices designed to combat fraud and exaggeration is realised.
Claims by accident quarter
Graph 4 shows the number of CTP claims per accident quarter (note 2). Since March 2008 there has been a clear upward trend in the number of claims per accident quarter from 2,451 in March 2008 to 4,571 in June 2016 and thereafter the number of CTP claims per accident quarter had been estimated to decline to 3,912 in June 2017 and 4,219 in September 2017.
Graph 4: Claims by accident quarter
Claim frequency is defined as the ultimate number of claims divided by the number of registered vehicles. The ultimate number of claims comprises all reported notifications (full claims and Accident Notification Forms (ANFs)) plus an estimate of claims yet to be reported.
Graph 5 shows the trend in claim frequency by accident quarter. Claims frequency increased consistently from 22 claims per 10,000 vehicles in March 2008 to 34 claims per 10,000 vehicles in June 2016 and thereafter it has declined. The estimated claim frequency for the September 2017 accident quarter is 31 claims per 10,000 vehicles and the average for the year to September 2017 is 30 claims per 10,000 vehicles.
Graph 5: Trend in claims frequency
Note: For the more recent accident quarters, projections are based on incomplete claims hence data presented for these quarters are just indicative and depend on the robustness of ultimate claims projections.
As at 30 September 2017, a total of 242,759 notifications (full claims and ANFs) have been reported since the current scheme commenced in October 1999. The total incurred cost (note 3) associated with the notifications is $21.7 billion with $16.7 billion claims cost paid. It is estimated that $4.9 billion (23%) is yet to be paid for claims reported to date.
Graph 6 shows how this unpaid amount is distributed across prior full accident years. Further development in payments is anticipated for accident year 2016/17, as late claims are reported and estimates for already reported claims are revised in line with new information becoming available to insurers.
Graph 6: Payments on reported claims as at 30 September 2017
The trend in average incurred costs of full claims (note 4) is shown in Graph 7 below. The incurred costs have been derived from historic claims payments supplied by insurers and are not adjusted for inflation.
Since September 2012 average incurred cost began to fall during the period when the proportion of legally represented minor severity claims increased. For claims already reported, insurers will continue to revise their cost estimates as more information is received on these claims. Insurers are yet to receive late claims from some accidents that have already occurred but not yet had claims lodged; this especially applies to the four most recent accident quarters.
These revisions and late reports introduce some uncertainty in the average cost estimates hence the trend line superimposed on Graph 7 presents a more likely level of final average costs of claims in more recent accident quarters.
Graph 7: Average incurred cost (full claims only)
SIRA is the government organisation responsible for the regulation of workers compensation insurance, motor accidents compulsory third party (CTP) insurance and home building compensation in NSW.
We focus on ensuring key public policy outcomes are achieved in relation to service delivery to injured people, affordability, and the effective management and sustainability of these insurance schemes.
For the NSW motor accidents insurance scheme, we monitor insurer performance, support road safety initiatives, promote optimal recovery for injured people and provide an independent dispute resolution service.
SIRA assumed the regulatory functions of the former Motor Accidents Authority from 1 September 2015.
Director, CTP Market & Premium Supervision
SIRA – Motor Accidents Insurance Regulation
1 Operation Strike Force RAVENS, funded by SIRA and run by the Fraud & Cybercrime Squad of the NSW Police Force in August 2016.
2 The numbers of claims reported for accidents from 2014 onward, includes projections for claims incurred but not yet reported (IBNR).
3 Incurred cost comprises the amount already paid on claims plus an estimate for likely future payments on claims yet to be finalised. The Incurred costs have not been adjusted for inflation.
4 Full claims account for over 99% of scheme incurred claims costs