Early History: the need for a CTP scheme
The Motor Vehicles (Third Party Insurance) Act 1942 introduced the first compulsory third party (CTP) personal injury insurance scheme to New South Wales.
Before this Act, all personal injury entitlements in NSW were determined by common law: in order to receive compensation, an injured person had to establish all the elements of the tort of negligence against the ‘at fault’ driver. As an injured person recovered their losses from the at-fault driver personally, the common law system often had devastating financial consequences for motorists without insurance. The risks were often as great for injured persons – if the at-fault driver did not have adequate financial resources, an injured person would not receive compensation for their injuries.
Impetus for reform
After World War II, with the growth of the automotive industry, cars became more affordable and private ownership and public road use increased rapidly. This was followed by an increase in the number and severity of motor vehicle accidents and personal injuries, so much so that in the first decade of compulsory cover, policies grew by 370 per cent.
By the early 1950s, the disparity in compensation for personal injuries resulting from a motor vehicle accident and those arising in the workplace captured media attention. In 1955, a parliamentary committee was appointed to review the scheme; however, it was not until over a decade later that reform was effected.
Early attempts to contain costs
During the mid 1960’s the scheme was reformed by removing juries and having all matters heard by a judge. Compulsory personal injury insurance was also back on the political agenda due the high inflation of the 1970’s which significantly effected the cost of premiums (indexed at the time).
In 1984, the first legislative attempt to directly limit claims costs, including limits on damages in certain circumstances, was made under the Motor Vehicles (Third Party Insurance) Amendment Act 1984. The Act also increased the discount rate from three to five per cent and placed a ceiling on damages for loss of gratuitous services and removal of pre-judgment interest. However, the reforms did not control the rising cost of premiums.
‘Transcover’
TransCover was a fault-based scheme introduced in 1987 under the Transport Accidents Compensation Act 1987, administered by the GIO. It represented a radical departure from the previous common law scheme as it provided statutory benefits for pain and suffering, medical expenses and capped weekly economic loss benefits. The restrictions on benefits under TransCover, however, made it a very unpopular scheme.
The Green Slip scheme
The introduction of the Motor Accidents Act 1988 restored the right to bring common law actions for damages arising out of motor vehicle accidents, but introduced some restrictions such as indexed caps on general damages, exclusion of general damages for small claims and provision for payment of treatment and rehabilitation expenses on an as incurred basis.
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. Premiums were deregulated at the end of 1991 and prices quickly plummeted as insurers scrambled for a share of these profits, reaching a low of $199 for good risks in 1993.
As prices plummeted the cost of claims escalated. By 1994 insurers were losing money and premiums began to rise, taking off in 1995 to reach levels nearly double the lows of the early 1990s.
As a result, the 1988 Act was amended by the Motor Accidents Amendment Act 1995 to reduce access to non-economic loss benefits on minor claims. Access to non-economic loss was further limited to those persons whose ability to lead a normal life had been, or was likely to be in the near future, significantly impaired for a continuous period of not less than 12 months by the injury suffered in the accident.
The success of the 1995 amendments, the cost of claims falling 16 per cent in 1996, was short-lived. The cost of the pre-1995 tail continued to grow, pushing up the base for future claims costs estimates and therefore premiums, albeit at a slower rate.
The scheme today
The Motor Accidents Compensation Act 1999 (MAC Act) began on 5 October 1999. In addition to promoting competition in CTP premium setting and keeping premiums affordable for road users, the reforms were aimed at encouraging early and appropriate treatment and rehabilitation to injured people, appropriate provision for future needs of those with ongoing disability, to provide compensation for compensable injuries sustained in motor accidents and to encourage early resolution of claims. Since the inception of the MAC act in 1999, there have been a number of enhancements to the scheme to 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 injured people. The ANF facilitates early notification of injury to the CTP insurer who must advise whether provisional liability is admitted within 10 days of receiving an ANF. When the ANF was first introduced in 1999, people injured by the fault of another driver could quickly claim up to $500 for medical and treatment costs once provisional liability was accepted by the insurer. Reforms to the scheme in 2007 increased the benefit available under an ANF to $5,000 and allowed the injured person to claim for medical treatment expenses as well as compensation for past loss of earnings. Further reforms to the scheme from April 2010 expanded the reach of the ANF so that anyone injured in a motor vehicle accident could access the benefits available 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 the injuries have recovered sufficiently 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 the 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 upon dealing with matters on the papers 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 previously subjective test for entitlement to non-economic loss payments with an objective one which requires a person to have suffered more than 10 percent whole person impairment. The advantage of this new 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 fees and costs
Maximum amounts payable by insurers for certain treatment provided in connection with motor accident injuries and 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.
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 on 1 October 2006 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. If the driver was not at fault, the child’s parents were left to pay for all treatment, care and rehabilitation costs.
The Lifetime Care and Support scheme was introduced to provide lifelong treatment, rehabilitation and attendant care services to people are very seriously injured in motor accidents in NSW. Assistance is available regardless of who caused the accident in which they person was injured. The scheme is administered by the Lifetime Care and Support Authority and is funded by a levy collected through Compulsory Third Party (CTP) insurance.