May 2019

Motor Injury Insights

finity.com.au

In this edition

Improving management of mental health claims

Trends in claim frequency

Our regular round-up of motor injury news from around Australia

Motor Injury Insights brings you all the news from the world of motor accident compensation.

| Motor Injury Insights | May 2019 2

Mental health claims are different

Mental ill-health has become a hot topic in recent years – with increasing prevalence, greater awareness and reduced stigma. One in five Australians aged over 15 will be affected by a mental health condition in any year, and one in two will be affected across the span of a lifetime. Mental illness is the leading cause of work absence and long term incapacity in Australia, and across the developed world.

The risk of developing a mental health condition is higher for people who have been injured. Furthermore, trauma and pain can exacerbate pre-existing psychological problems. Personal injury claims for physical injuries that also involve psychological problems take significantly longer to resolve and incur considerably higher costs.

Musculoskeletal injury claims with ‘secondary psychological symptoms’ were over four times more expensive than claims with no psychological symptoms reported.

Mental health diagnoses and motor accidents

For mental health claims arising out of motor vehicle accidents, the most common diagnoses are:

• Post-traumatic stress disorder

• Depression – major depressive disorder

• Anxiety – generalised anxiety disorder and phobic disorders, such as driving phobia

• Acute stress disorder

• Adjustment disorder.

Combinations of the above disorders are common and, in many cases, the diagnosis changes over time as new symptoms emerge or become chronic. For example, symptoms that do not meet the diagnostic criteria for an anxiety disorder or PTSD may be initially diagnosed as an adjustment or acute stress disorder.

Problems for insurers include that experts may disagree on the diagnosis, a diagnosis may change over time, and a diagnosis of itself does not indicate the severity of an individual’s condition nor their likely prognosis. A variety of clinical tools, such as the Depression Anxiety Stress Scale, can provide an indication of severity, but the assessments do not necessarily correlate with the measures of permanent impairment generally used to determine entitlements in CTP schemes. An additional problem for insurers is that psychiatric diagnosis is necessarily based on subjective criteria and self-reporting of symptoms; compared with physical injuries, there are fewer objective indicators that can be used to verify the existence or severity of the condition.

| Motor Injury Insights | May 2019 3

The impairment problem

Severity is often assessed in motor injury compensation schemes using the concept of ‘permanent impairment’. There are two commonly used instruments to assess psychiatric impairment:

Used in:

Psychiatric Injury Rating Scale (PIRS) NSW, QLD1

Guide to the Evaluation of Psychiatric Impairment for Clinicians (GEPIC)

VIC, SA1

1 Used in conjunction with the Injury Scale Value (ISV).

While both scales purport to measure impairment, they in fact rely on an assessment of the level of disability and impact on activities, which for many conditions can vary over time and are impacted by treatment. Moreover, as with diagnosis, impairment reports will often be subjective, inconsistent with each other, difficult to verify and amenable to coaching.

The notion of permanency of impairment of function is problematic when applied to mental health conditions. Unlike a physical injury, functional ability typically varies in psychological conditions. A person’s condition can worsen during periods of stress, but often improves over time, especially with early and appropriate treatment and a gradual return to function including work. In this regard, the health benefits of a positive return to work cannot be overstated.

How can mental health claims be better managed?

Use data analytics to identify at risk claims – triage using known risk factors, and segment for targeted intervention.

Engage with GPs early. GPs often don’t have specialist skills to treat psychological injuries, but they are key in referring to appropriate specialists. Engagement by insurers can ensure that reported psychological symptoms receive appropriate treatment.

Ensure that co-morbidities and vulnerabilities (including bio-psycho-social factors) are identified and addressed.

The claims process can lead to secondary harm, so minimise unnecessary stressors and friction points (e.g. multiple requests for information, requiring numerous re-telling of injury etc.) Communication with an injured person when psychological factors are at play should be done with sensitivity and empathy. Staff training is essential.

For claims involving time off work, timely and effective plans and goal-oriented rehabilitation, developed in consultation with treating practitioners, are critical. Liaising with employers to ensure a supportive environment during the return to work phase is also worthwhile.

The expert use of clinical neuro-psychological tests can assist in identifying unmeritorious claims.

The bottom line

Psychological claims arising from motor accidents typically take longer to resolve and cost more than claims without primary or secondary psychological factors. Early identification and bespoke management are crucial to achieving better outcomes, both for the injured party and the scheme.

References used for this article

ABS 2008, National Survey of mental health and wellbeing. Harvey et al., work and depression/anxiety disorders – a systematic review of reviews, 2013. Guest et al., Psychological distress following a motor vehicle crash: evidence from a state-wide retrospective study examining settlement times and costs of compensation claims, 2017. Atkins G and Freeman S, Mental Health and Insurance, 2017, Actuaries Institute Green Paper

| Motor Injury Insights | May 2019 4

Claim Frequency Trends

Figure 1 shows the past five years’ CTP claim frequencies for Australian and NZ jurisdictions. Each jurisdiction’s frequency is expressed as an index relative to 2013/14.

NSW

Following the commencement of the new scheme on 1 December 2017, the claim frequency dropped, driven by lower volumes of not-at-fault claims (for both minor and non-minor injury).

VIC

The small increase in 17/18 is attributed to the removal of a medical excess. Previously, some claims had to meet the first $651 of medical expenses.

QLD

Although the claim frequency improved in 17/18, the latest two accident years remain well above earlier years, driven by an increase in low severity legally represented claims.

SA

The number of claims lodged has stopped falling for the first time since the 2013 scheme reforms.

WA

Claim lodgements fell by 5% in 17/18, following an increase in 16/17 attributed to claim farming.

TAS

The rate of fatalities increased in 17/18, while the number of serious injuries has plateaued. The number of claims lodged increased by 7%, while vehicle numbers increased by 3%, giving an increase in frequency of 4%.

NT

The increasing frequency is believed to be due to public hospitals lodging claims for short hospital stays.

NZ

The increasing frequency is driven by new weekly compensation claims.

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NSW ultimate accident year frequency, MACA claims + ANFs, MAIA all claims (excl. early notifications)

VIC, NT ultimate accident year frequency, no-fault claims

QLD ultimate accident year frequency, all claims

SA, WA, TAS number lodged in year, all claims

NZ entitlement claims in the Motor Vehicle Account

Figure 1 – Claim Frequency Trends

| Motor Injury Insights | May 2019 5

Funding Ratios

Figure 2 shows a three-year history of the funding ratios for the government monopoly schemes in Australia and NZ, including the lifetime schemes. For consistency between schemes, the funding ratio is total assets divided by total liabilities (in some cases, this differs from the scheme’s definition).

Figure 2 – Funding Ratio of Monopoly Motor Injury Schemes

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• The TAC’s funding ratio fell three points to 97%. Unfavourable performance from insurance operations (higher attendant care costs and paramedical services), coupled with lower discount rates, were only partly offset by strong investment returns.

• MAC (SA)’s ratio reduced 13 points to 116%. During 2017/18, MAC paid $359 million to the government’s Highway Fund. Without this payment, the funding ratio would have been 157%.

• In WA:

ɥ The TPIF (fault-based CTP cover) funding ratio increased marginally to 143%, despite payment of a dividend of $149 million to the government. Without the dividend, the funding ratio would have been 149%.

ɥ The MVCIF, which covers the catastrophically injured where fault cannot be attributed to another driver, had a funding ratio of 116% after its second year, up from 111%. The improvement reflects the better than expected underwriting result and investment returns.

| Motor Injury Insights | May 2019 6

Jurisdiction Roundup

New South Wales

MAIA claims experience emerging below expectations

At SIRA’s request, the scheme actuary reviewed the NSW CTP premium parameters in late 20182. The review identified lower than anticipated claims experience in both the previous MACA 1999 scheme and the current MAIA 2017 scheme. This favourable claims experience, along with a $13 reduction in levies, resulted in the SIRA Board reducing the target scheme average premium from $526 to $499 in November 2018. Insurers subsequently re-filed to reflect this reduction (see the reduction for Class 1 vehicles in Figure 3).

The scheme actuary identified the following areas of lower than expected claims experience under the new scheme, based on the experience to 31 August 2018.

Scheme Actuary’s finding Finity’s view

At-Fault (AF) claims

Claim volumes 35%–55% below expected for mature accident months.

We expect claim volumes to increase over time as AF claimants learn of their eligibility for up to 26 weeks of loss of income and treatment benefits. We certainly expect that those more seriously injured will make a claim.

Not-At-Fault (NAF) minor claims

Claim volumes 80% to 135% higher than expected for mature accident months. This was more than offset by average payments per claim being 70% below expected.

The lower size is partly explained by higher volumes of small treatment-only claims.

NAF non-minor claims

Claim volumes 35% below expected for mature accident months.

This experience is surprising, given the entitlement to benefits for these claimants under MAIA is essentially unchanged – although medicals and past earnings are now paid on a periodic basis.

It is unclear how much these volumes may increase due to minor injury decisions being overturned.

It is also unclear how many people will make a common law claim – whether or not they have made a statutory claim.

Ravens strikes again

In early April 2019, four people were charged over alleged involvement in a CTP fraud syndicate operating across Sydney. To date, Strike Force Ravens investigators have arrested 27 people, laying more than 170 charges in relation to total fraud of more than $11 million.

2 www.sira.nsw.gov.au/__data/assets/pdf_file/0006/435795/2018-EY-NSW-CTP-Premium-Parameter-Review-report.pdf

| Motor Injury Insights | May 2019 7

Lower premiums, and goodbye to CIC Allianz

Figure 3 shows the insurers’ premium rates for ‘model drivers’, ranked from most expensive to cheapest, at September 2018 and May 2019.

Figure 3 – NSW Class 1 Metro Premiums

Policies Incepting 23 September 2018

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Allianz $478

AAMI $475

GIO $471

QBE $470

NRMA $468

CIC-Allianz $467

Policies Incepting 1 May 2019

ChangeLicence Premium

NRMA $448 ($20)

QBE $448 ($22)

AAMI $446 ($29)

GIO $444 ($27)

Allianz $440 ($38)

• Premiums have fallen by 5% on average, reflecting SIRA’s reduction in the scheme target average premium.

• The spread of premiums has continued to contract, from $11 at September 2018 to $8 at May 2019.

• Allianz now has the cheapest ‘best price’ after previously having the most expensive price. NRMA and QBE now charge the highest price.

CIC Allianz exits

The Allianz group ceased offering CTP under its CIC Allianz licence, with effect from 15 January 2019. CIC Allianz policyholders will be invited to renew with the continuing Allianz licence.

Market Share

Figure 4 updates our analysis of NSW market shares.

Figure 4 – NSW Market Shares

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• The Suncorp brands had the biggest change in market share during 2018, losing three points, with QBE appearing to benefit most.

• The Allianz brands saw a further modest increase in share.

• NRMA gained market share, a turnaround from its recent downward trajectory.

| Motor Injury Insights | May 2019 8

Queensland

Movements in ceiling price

As shown in Table 1, the Class 1 premium ceiling decreased by $5 for premiums from 1 January 2019, then increased by $12 for premiums from 1 July 2019 (including a $3 increase in the levies).

Table 1 – Queensland Class 1 Premium Ceiling

Effective from Ceiling Change in Quarter

1 Oct 18 344

1 Jan 19 339 (5)

1 Apr 19 339 –

1 Jul 19 351 12

Insurers’ filed premiums for 1 July 2019 and beyond were not available at the time of writing; we expect all insurers will continue to file at the ceiling.

RACQ grows in Qld

RACQ gained market share in the year, mostly at Suncorp’s expense – see Figure 5.

Figure 5 – Queensland Market Shares

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After the 2016 Scheme review, MAIC

has said it is moving from ‘light touch’

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the Hayne Royal Commission.

Scheme reforms in response to claim farming

MAIC is implementing several reforms intended to:

• Protect the community and preserve scheme integrity

• Establish barriers to scams, harassment and privacy breaches

• Establish an investigation and prosecution regime.

The proposed reforms are due to be introduced to Parliament, with implementation expected in August/September 2019.

| Motor Injury Insights | May 2019 9

ACT

Figure 6 shows the premiums charged for Class 1 passenger vehicles, ranked from most expensive to cheapest, at October 2018 and February 2019.

Figure 6 – ACT Premiums: Private Use Passenger Vehicle

Policies Incepting 1 October 2018

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APIA $566

AAMI $549

NRMA $546

GIO $542

Policies Incepting 1 February 2019

ChangeLicence Premium

APIA $550 ($16)

AAMI $533 ($16)

NRMA $524 ($22)

GIO* $520 ($22)

*from 18 March 2019

Premiums have reduced by 3–4% for all insurers. The range of premiums has increased from $24 to $30.

Update on ACT CTP reforms

The Motor Accident Injuries Bill 2019 was introduced to the Legislative Assembly on 19 March 2019. The proposed scheme will provide defined benefits for up to five years regardless of fault, with access to common law benefits largely restricted to those with a Whole Person Impairment (WPI) of at least 10%3. Following criticism from the legal profession and the Greens, the initial draft legislation was amended to give access to common law for some claimants who do not meet the 10% threshold.

GIO’s share continues to grow

Figure 7 shows market shares published by ACT Treasury, based on premiums collected.

GIO remained the cheapest and its market share has continued to increase. The three Suncorp brands now cover 46% of the market.

Figure 7 – ACT Market Shares

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3 For further detail on the scheme as initially proposed, see the April 2018 edition of Motor Injury Insights here.

| Motor Injury Insights | May 2019 10

South Australia

Price competition to start from 1 July 2019

The privatisation of the SA scheme started on 1 July 2016 with a three year transition period, during which vehicles were allocated to one of four approved insurers who offered the same CTP policies at the same prices. From 1 July 2019, motorists will be able to choose their CTP insurer. The four insurers (AAMI, Allianz, QBE and SGIC) will continue to offer identical policies, but they will be able to compete on price and service.

Price During the three year transition period, premiums increased by around 3% p.a.

From 1 July 2019, insurers will set their own premiums for each premium class / district, within a range determined by the Regulator.

Service To help motorists select their insurer, registration renewal forms will show the prices for each insurer together with a Customer Service Rating. The rating will show how claimants rate each insurer’s service, based on surveys conducted by the Regulator.

Stable tort temperature

Finity’s monitoring of the ‘tort temperature’ continues to show a stable pattern overall, with some cooling apparent in the ACT and Queensland. The first two cases below are in this category, while the third may be viewed as a broadening of coverage.

Lee v McGrath [2018] ACTSC 173

A boy was catastrophically injured when hit while running across the road. Liability was hard-fought, with the defendant winning in both the Supreme Court and the Court of Appeal. The claim would have been about $10 million.

Lee v Lee; Hsu v RACQ Insurance Limited; Lee v RACQ Insurance Limited [2018] QCA 104

The Lee family were in a crash on North Stradbroke Island, with their 17-year old son badly injured. The family claimed that the father was driving; hence the son would have a CTP claim. Various other pieces of evidence pointed to the son being the driver at the time. The trial judge found that the son was driving. The Queensland Court of Appeal, in what it described as a finely balanced case, rejected the appeal and agreed that the finding was neither “glaringly improbable” nor “contrary to compelling inferences”.

Caffrey v AAI Limited [2019] QSC 7

A police officer was the first responder to a single vehicle accident where the car hit a tree and the driver later died. The circumstances were particularly distressing, and the officer later developed PTSD and sued the vehicle’s insurer. The trial judge found in favour of the police officer, saying that the driver had (and breached) a duty of care regarding the psychiatric response of a first responder.

We think this may be a landmark decision, even after allowing for the distressing circumstances.

AUSTRALIA

SydneyLevel 7, 68 Harrington StreetThe Rocks NSW 2000+61 2 8252 3300

MelbourneLevel 3, 30 Collins StreetMelbourne VIC 3000+61 3 8080 0900

AdelaideLevel 30, Westpac House 91 King William StreetAdelaide SA 5000+61 8 8233 5817

NEW ZEALAND

AucklandLevel 5, 79 Queen StreetAuckland 1010+64 9 306 7700

Finity’s Motor Injury Team

Finity’s Motor Injury team prides itself on looking beyond the pure analytics to gain a deeper understanding of the cost drivers for schemes. This means we can respond appropriately in valuations, premium setting and scheme design.

In addition to our actuaries, Finity has a dedicated group of claims and operational insurance experts in our Management Consulting practice, who can assist with claims and expense management.

If you would like to receive future editions of Motor Injury Insights,

please contact Rebecca Dalleywater on +61 2 8252 3458 or at

rebecca.dalleywater@finity.com.au.

This article does not constitute either actuarial or investment advice. While Finity has taken reasonable care in compiling the information presented, Finity does not warrant that the information is correct.

Copyright © 2019 Finity Consulting Pty Limited.

Contact the author

Kane Boulton

kane.boulton@finity.com.au

Sydney Office | +61 2 8252 3348

Raj Kanhai

raj.kanhai@finity.com.au

Sydney Office | +61 2 8252 3332

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