The Motor Accidents Authority (MAA) has developed a regulatory and enforcement policy for dealing with minor and major non-compliances by Compulsory Third Party insurers (the insurers). The intent is to provide a fair and consistent regulatory response to legislative and statutory non-compliances by insurers.
It should be noted that this policy is subject to change and has been developed principally to provide general guidance to the MAA in its decision-making.
This document is available to insurers, lawyers, claimants and the public on the MAA’s website.
It is not legally binding on the MAA and is non-justiciable1.
The purpose of this policy document is to:
- set out the MAA’s policy and procedural framework for dealing with legislative and statutory non-compliances by insurers
- improve levels of compliance with the MAA’s Guidelines and the legislation administered by the MAA
- promote voluntary disclosure of legislative and statutory non-compliances by insurers
- promote voluntary remediation by an insurer when non-compliance is identified
- increase stakeholder awareness and knowledge of the regulatory and enforcement tools available to the MAA, and the factors considered by the MAA in determining when to apply them, and
- increase stakeholder confidence in the MAA as an independent, fair and effective regulator of the Motor Accidents Compensation Scheme.
This policy ensures that the MAA’s discretionary powers are exercised reasonably and consistently from case to case, unless the merits of any particular case justify a different approach.2
This policy addresses questions such as:
- What does the MAA consider to be minor and major non-compliances?
- What are the remedial, regulatory and enforcement options available to the MAA?
- What regulatory approach should the MAA take in response to minor and major non-compliances by insurers?
- When should penalty provisions be applied?
- What is the MAA’s decision-making process for responding to non-compliances?
- What mitigating factors or circumstances may be taken into account when considering penalties?
- What input does an insurer have during the MAA’s decision-making process if the MAA is contemplating the application of a penalty?
- What avenues for review or appeal does an insurer have once the MAA has made a decision to apply a penalty provision?
2. Regulatory model
This policy recognises that there are a range of regulatory tools that may be employed by the regulator to achieve the most appropriate response and outcomes for a given issue or incident1, 4, 5, 6, 10.
The regulatory policy adopted by the MAA is based on the sanctions pyramid model of regulation developed by Ayres and Braithwaite4. The regulatory pyramid model used by the MAA is represented below in Figure 1.
The model is hierarchical in that it promotes the consideration of regulatory tools at the base of the pyramid, such as education and persuasion, before considering the use of penalty provisions which sit at the top of the pyramid. As the Scheme has matured the MAA has used education as the dominant regulatory tool to promote insurer understanding and compliance.
Most non-compliances to date have successfully been dealt with by use of education, persuasion and warning. The MAA considers that education, persuasion and warnings are appropriate and effective regulatory tools for dealing with minor non-compliances by insurers. However, for major non-compliances, the MAA may issue breach notices (formal warning), letter of censure and/or penalty notices.
3. Identification of non-compliance
Legislation administered by the MAA includes:
- The Motor Accidents Compensation Act 1999
- The Motor Accidents Act 1988
- Any regulations, Guidelines issued or licence conditions imposed under these Acts.
For the purposes of this policy, non-compliances (contraventions) by an insurer with legislation, regulations and guidelines may be described as either minor or major.
Non-compliances with legislative and statutory requirements may be identified through the following methods:
- MAA compliance audits, reviews and investigations.
- insurers' reports to the MAA on compliance performance with MAA statutory Guidelines (e.g. relating to claims handling, market practice, MCIS Levies), and reports on product and claims complaints.
- complaints referred directly to the MAA by claimants, claimants’ legal representatives, Green Slip customers, and other Scheme participants.
- reports on the payment of MCIS (Medical Care and Injury Services) Levy to the MAA and Lifetime Care & Support Authority.
- others as appropriate.
If, in the course of the activities of the MAA’s Motor Accidents Assessment Service (MAAS) or Claims Advisory Service (CAS), a serious non-compliance by an insurer is indicated, MAAS or CAS may refer the matter to the Insurer Licensing & Performance Branch, for follow-up with the insurer concerned.
Not all non-compliance results in regulatory action by the MAA. For example, Section 162(2) of the Motor Accidents Compensation Act 1999 (the Act) states that actions by an insurer for the purpose of achieving early resolution of compensation claims, and early payment under Part 3.2 (Accident Notification Forms - ANFs), at particular levels, do not contravene a licence condition “…if the insurer establishes that the insurer furnished a report to the Authority within a reasonable period and that the report sets out reasonable grounds for justifying the contravention”.
4. Classification of non-compliances
A description of minor and major non-compliances follows.
4.1. Minor non-compliances
Minor non-compliances are generally of a technical or relatively inconsequential nature,and are unlikely to cause significant harm.
- Education or persuasive measures such as conciliation and negotiation, or warnings are used in response to minor non-compliances.
- These types of regulatory tools ensure that insurers are made fully aware of their obligations and are provided with an opportunity to develop their own strategies, procedures and practices to prevent further non-compliances.
- However, the MAA may consider a wider range of responses for minor non-compliances that escalate depending upon the severity/nature of the non-compliance or if non-compliant activities continue.
4.2 Major non-compliances
A non-compliance is considered to be major if it has caused, or is likely to cause, the claimant or any stakeholder significant harm. Consideration is also given to the degree of willfulness associated with the violation, and the history of the offender6.
- There are a number of penalty provisions under the Motor Accidents Compensation Act that are administered by the MAA.
- Compliance with the Guidelines issued under the Act is a condition of an insurer’s licence.
- Major non-compliances by an insurer may be subject to penalty provisions under the following sections of the Act:
- s161 – imposition of additional licence conditions
- s165 - suspension of licence
- s166 - civil penalty or censure of licensed insurer.
The above penalty provisions are in relation to contravention or breach of either:
- an insurer’s licence
- the Act
- the regulations
- the Insurance Industry Deed, or
- the Guidelines issued by the MAA.
The MAA may take proceedings for failure to comply with the terms of a licence, or the Act or regulation against an insurer under Section 183 of the Act in order to enforce compliance.
Financial payment non-compliances relating to contravention of MCIS Levy Collection and Refund Guidelines may be considered to be major non-compliances, and subject to penalty provisions and regulatory sanctions as described in Section 214A(4) of the Act and Section 54 of the Motor Accidents (Lifetime Care and Support) Act 2006.
5. Steps for determining the seriousness of non-compliances
Three steps are used by the MAA to determine a non-compliance as minor or major. A fourth step is used in the event that a major non-compliance has been identified. Appendix 1 provides a flowchart of this process.
5.1. Step 1 – Degree of harm caused by non-compliance
In order to determine the seriousness of a non-compliance, the MAA firstly assesses the amount of harm (negative impact) that a non-compliance has caused or is likely to cause the following stakeholders:
- the claimant (including the claimant’s past and future health needs and/or other damages)
- the Green Slip customer (in relation to the issuing of Green Slips)
- Scheme participants including treatment, rehabilitation and attendant care service providers, medical practitioners, legal representatives
- the Motor Accidents Assessment Service and its external assessors
- the offending insurer
- other insurers participating in the Scheme
- other stakeholders in the Scheme eg policy-holders or potential policy-holders
- other parties including the Lifetime Care and Support Authority, Workers Compensation Authorities, health-care providers, the public
- the Nominal Defendant
- the Motor Accidents Scheme and the MAA (by way of performance, reputation and/or financially).
Consideration will be given to the actions that have already been undertaken by the insurer to reduce the amount of harm prior to the matter coming to the MAA’s attention.
5.2. Step 2 – Willfulness or negligence of non-compliance
Secondly, the MAA assesses whether the non-compliance was:
- grossly negligent
- negligent, or
- a mistake.
If the non-compliance was intentional, the MAA considers if this was a result of the insurer deliberately contravening its legislative or statutory requirements.
If the non-compliance was found to be grossly negligent or negligent, the MAA considers whether the insurer had demonstrated due diligence, when compared with conventional business risk management practice and the minimum acceptable processes/policies or standards for the industry at the time of the non-compliance.
If the non-compliance was found to be a mistake, the MAA considers whether it would be considered reasonable for such a mistake to have occurred and whether adequate risk management processes/policies had been in place. This could involve a comparison of the insurer’s processes/policies with those of the industry at the time of the non-compliance, and the determination of a tolerable frequency level for such mistakes. One indication of an acceptable tolerance level of such mistakes may be to compare the frequency of mistakes by the offending insurer with the rest of the industry on a market share basis. It is always up to the insurer to demonstrate the reasonableness of a mistake.
5.3. Step 3 – Insurer compliance history in relation to the non-compliance
Thirdly, the MAA considers the history of the offending insurer in relation to the non-compliance:
- had similar non-compliances previously been identified by the insurer?
- had similar non-compliances previously been brought to the MAA’s attention through its audits or complaints?
- has the frequency of the non-compliance exceeded a reasonable tolerance level?
- had the MAA previously requested the insurer to comply?
- had the insurer previously been issued with a warning by the MAA for a similar non-compliance?
- what remedial and preventative actions had the insurer taken if similar non-compliances had previously been brought to its attention?
5.4. Finding of minor non-compliance
On the basis of steps 1-3, if a minor non-compliance has been found, then the MAA will notify the insurer about the non-compliance that has occurred. An insurer may seek a review of the MAA’s decision on the grounds of procedural unfairness, significant new information or material error. The review should be requested by the insurer to the Manager Insurer Licensing & Performance, within 10 working days of being notified about the non-compliance.
Minor non-compliances may also be identified in insurers’ compliance performance and complaint reports to the MAA. If the frequency of minor non-compliances indicates a systemic problem and the insurer has not initiated remedial action, the MAA will request a report on the remedial action that the insurer will undertake.
5.5 Finding of major non-compliance
If the MAA, after considering the aggregated findings of steps 1-3, determines that a major non-compliance has occurred, the MAA will consider if there are any grounds for leniency as described in step 4, prior to the consideration of an appropriate action to enforce compliance and/or application of a penalty.
5.6 Step 4 – Consideration of leniency for major non-compliance (breach)
For a major non-compliance, the MAA will consider to what extent the following mitigating factors warrant leniency in regard to the type of penalty to be applied by the MAA:
- the voluntary disclosure by the insurer of the breach to the MAA
- action(s) by the insurer to remedy the breach after the matter has come to the MAA’s attention (as distinct from action(s) taken by the insurer prior to the matter coming to the MAA’s attention which are considered in step 1)
- implementation by the insurer of policy and procedures to prevent further such breaches
- whether the insurer has cooperated with the MAA’s investigations
- the performance in general of the insurer (as determined by relevant performance indicators) relating to achievement of the objects of the Act
- the reliability and accuracy of the insurer’s voluntary disclosure of breaches in its compliance and complaint self-reports to the MAA
- if the insurer has a demonstrated history and culture of compliance as indicated from the MAA’s compliance audits, reviews and complaint records
- the time elapsed since the occurrence of the breach
- whether the breach arose from an individual member of staff or from policies or procedures set by management
- whether the insurer has demonstrated due diligence with respect to compliance in general
- the likelihood of the breach continuing or being repeated
- how a reasonable person informed of the same facts would view the breach and the response by the insurer
- the most appropriate response by the MAA that will act as an effective deterrent for all insurers
- the standard of evidence that has been collected
- the cost of the proposed response option compared to the benefits of that option
- consideration of mitigating factors under the Prosecution Guidelines10 Office of the Director of Public Prosecutions for serious non-compliances that may warrant criminal sanction.
6. Consideration of penalty for major non-compliance
6.1 Issue of a breach notice (formal warning - no penalty)
If, after consideration of the above mitigating factors, the MAA determines that the major non-compliance does not warrant a penalty, the MAA will issue a breach notice (formal warning) that will describe:
- the nature of the breach
- the mitigating factors for leniency considered by the MAA
- the penalty that would have been applied if there were no mitigating factors, and
- a warning regarding future breaches.
The breach notice will be sent to the relevant insurer.
A breach notice is a formal warning to the insurer. If there appears to be a systemic breach, the breach notice may also include a request for details of remedial action to be taken by the insurer.
An insurer may seek a review of a breach notice by the Manager Insurer Licensing & Performance on the grounds of procedural unfairness, material error or significant new information. The review should be requested by the insurer within 10 working days of being notified about the breach.
6.2. Issue of a penalty notice
If, after consideration of the mitigating factors from step 4, the MAA does not consider leniency is warranted, the MAA will issue a penalty notice to the insurer.
Penalties for a breach of Guidelines relating to MCIS Levy payments (e.g. late payments or underpayments to the MAA) are determined in accordance with Section 214A of the Act.
The penalty notice will describe:
- the nature of the breach
- reasons why the MAA considers the breach to be of major severity (steps 1-3)
- the mitigating factors that have been considered by the MAA (step 4), and
- the penalty being imposed by the MAA.
The penalty notice will also include a request for the insurer to provide, within 10 working days of being notified, a report on remedial action to be taken by the insurer.
An insurer may seek a review of a penalty notice, by the Manager Insurer Licensing & Performance, within 10 working days of being notified of the penalty notice. This may be on the grounds of procedural unfairness, material error or significant new information.
Following this review, the insurer may also appeal the review findings. A further review by the Deputy General Manager of the MAA may be requested within 10 working days of the insurer being notified about the Manager Insurer Licensing & Performance’s review findings.
If the penalty is a civil penalty under Section 166 of the Act, the MAA must refer the matter to an advisory committee for advice. The committee will be composed of:
- the Chairperson of the Board of Directors of the Authority
- a nominee of the Insurance Council of Australia (ICA), and
- another member nominated jointly by the MAA and the ICA.
The committee will give the insurer an opportunity to make written submissions with respect to the alleged breach, prior to providing advice to the MAA.
The range of penalties that may be considered by the MAA are described in Part 7. It should be noted that none of the penalties described in this policy document supersede the various penalties for specific offences provided for in the Act.
6.3. Notification to APRA
The MAA has a Memorandum of Understanding (MOU) with the Australian Prudential Regulation Authority (APRA) to share information which assists each agency with its regulatory functions. Where a major non-compliance has been established relevant to APRA’s prudential supervision, the MAA will ordinarily, under the terms of the MOU, inform APRA of such issues.
The penalties that may be considered by the MAA are described below in increasing order of severity.
The penalty applied will be proportionate to the seriousness and extent of harm caused by the breach:
- S166 - Letter of censure
- S161 - Add new licence condition (Issue Notice under S161 but subject to S162)
- S214A(4)(b) – Financial Penalty - Relating to payment and collection of Fund Levy (Penalty interest of 15% per annum compounded quarterly)
- S166 - Civil penalty - Breach of Act, Regulations, licence condition or Industry Deed (Max $50,000). Matter must be referred for advice from a special committee
- Publication by the MAA of an insurer’s breaches
- S179 - Report to Minister re 1) Level of compliance 2) Complaints èMay be made public and be tabled in Parliament
- S161(4) - Penalty - Contravene licence condition (Max 100 penalty units)
- S214A(4) - Penalty - Relating to payment and collection of Fund Levy (Max 100 penalty units and interest penalty)
- S165 - Suspension of licence.
- ALRC, Principled Regulation: Federal Civil and Administrative Penalties in Australia, (ALRC Report 95), last modified 24 August 2010.
- NSW Ombudsman, Discretionary Powers, Public Sector Agencies Fact Sheet No.4, November 2010.
- Motor Accidents Authority, 2007 Industry Report - CTP Industry Review (Review of NSW CTP Insurance Industry’s Compliance Performance in 2007 with the MAA Claims Handling Guidelines) published December 2008
- Ayres, I. and Braithwaite, J., Responsive Regulation: Transcending the Deregulation Debate, Oxford University Press, New York, 1992.
- Black, J., Managing Discretion, ALRC Conference – Penalties: Policy, Principles and Practice in Government Relations, June 2001.
- Sparrow, Malcolm K., The Regulatory Craft: controlling risks, solving problems, and managing compliance, The Brookings Institution, 2000.
- NSW Environmental Protection Authority (EPA), EPA Prosecution Guidelines, July 2001, revised 2004.
- Australian Law Reform Commission, Securing Compliance, Discussion Paper 65, Civil and Administrative Penalties in Australian Federal Regulation, April 2002.
- NSW Ombudsman, Enforcement, Public Sector Agencies Fact Sheet No.5, November 2010.
- Office of the Director of Public Prosecutions (DPP) - Prosecution Guidelines, Chapter 4, pp8-10.
Appendix 1: MAA process for assessing non-compliance
Appendix 2: Acronyms
- APRA: Australian Prudential Regulation Authority
- CAS: Claims Advisory Service
- CTP: Compulsory Third Party
- CTP Insurance: Compulsory Third Party personal injury or Green Slip insurance
- ICA: Insurance Council of Australia
- ILP: Insurer Licensing & Performance
- LTCSA: Lifetime Care & Support Authority
- MAA: Motor Accidents Authority
- MAAS: Motor Accidents Assessment Service
- MAS: Medical Assessment Service
- MCIS: Medical Care and Injury Services
- Scheme: Motor Accidents personal injury Scheme
- The Act: Motor Accidents Compensation Act 1999
Issued: 19 October 2005
Revised: July 2008
Revised: July 2012
Revised: February 2015