South Australia Compulsory Third Party Insurance Scheme

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					South Australia’s
Compulsory Third Party
Insurance Scheme
2012 Green Paper
Foreword                                                                                                  Page 03

South Australia’s Compulsory Third Party Insurance (CTP) Scheme                                           Page 04

Issues confronting South Australia’s CTP scheme                                                           Page 05
Scheme fairness                                                                                           Page 06
             Scheme outcomes                                                                              Page 08
             Scheme affordability                                                                         Page 11

‘Fault’ versus ‘no-fault’ based insurance schemes                                                         Page 12

The national injury insurance scheme proposal                                                             Page 14

Potential reform options for scheme design                                                                Page 15
               Option 1 — No-fault cover for catastrophic injuries                                        Page 15
               Option 2 — A no-fault catastrophic injury scheme combined with
                           a reformed fault-based scheme for non-catastrophic injuries                    Page 17
               Option 3 — Fully no-fault scheme                                                           Page 20

Summary of impact of premium for each of the options                                                      Page 22

Scheme management issues                                                                                  Page 23

Some questions for consideration and feedback                                                             Page 24

Invitation to comment                                                                                     Page 25

Attachment 1 — Whole Person Impairment (WPI)                                                              Page 26

Attachment 2 — comparison of fault and no-fault schemes                                                   Page 30

                                South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 02
                            Despite our best road             All Australian states have CTP schemes of some sort,
                            safety efforts, thousands         but not all of them work like ours. In some, you can
                            of South Australians are          claim even if the crash was your fault. Comparing the
                            injured in road crashes           premiums around Australia, these no-fault schemes do
                            every year. The injuries          not necessarily cost more. The South Australian CTP
                            can cause financial losses,        premium is currently among the more expensive in
                            such as time off work and         Australia. This is because the cost depends as much on
                            treatment expenses, and           the benefits provided as it does on the type of scheme.
                            sometimes leave the person
                                                              The Government believes it is time to look at our
                            permanently disabled,
                                                              scheme again. Recently, the Productivity Commission
                            affecting their earning
                                                              has reported about the possibility of a national no-fault
power. In severe cases, the person may need long-term
                                                              scheme to provide long-term care for people who
care such as home nursing or having to live in supported
                                                              suffer catastrophic injuries. The Council of Australian
accommodation. Altogether, these losses are very costly.
                                                              Governments (COAG) is now looking into this. In turn,
In most cases, the driver who causes the crash could          the South Australian Government is considering reforms
not afford to pay for the damage done. This is why, since     to improve the fairness and cost-effectiveness of our
1936, South Australia has had a Compulsory Third Party        CTP scheme. Achieving better recovery, rehabilitation
(CTP) insurance scheme. When you register your motor          and ongoing care and support outcomes for injured
vehicle, most of the cost of registration is your annual      motorists is a key focus for this review. As a first step,
CTP premium, covering you against the risk that you           this paper outlines options and invites your comments.
cause a crash that injures someone.
                                                              Details of the closing date and how you can comment
The scheme is not well known and many people only             appear at the end of the paper. I look forward to hearing
find out about it if they are involved in a crash. Some        from you about how we can improve our scheme for the
are surprised to find that the scheme does not cover           benefit of all South Australians.
all crashes. It only applies where the injured person
can show that the crash was another driver’s fault. For
instance, if you are injured because another driver runs a
red light or overtakes on a blind corner, you can claim on
the scheme. If you are injured because you fall asleep
at the wheel and hit a tree, you cannot. Some people          Jack Snelling
find this fair (if you caused the crash, why should you        Treasurer
be compensated?) but others disagree (why should
the scheme not meet the needs of everyone seriously
injured on the roads?).

                                South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 03
South Australia’s Compulsory
Third Party Insurance (CTP) Scheme
Our present CTP scheme looks like this:                                              The compensation and the associated legal expenses
                                                                                     are paid mainly from the CTP premiums charged on the
• Injured persons can only claim on the scheme if they
                                                                                     1.3 million vehicles garaged and registered in South
  can prove that the accident was the fault of the driver
                                                                                     Australia. The CTP premium is the largest component of
  of a South Australian vehicle.
                                                                                     the fees paid when registering your motor vehicle.
• If the injured person and the claims agent cannot
                                                                                     There are around 6000 claims made against the
  reach agreement about the amount of compensation,
                                                                                     scheme each year. Total benefits paid by the scheme
  there is a court case. The court applies the rules in
                                                                                     to injured persons were $361 million in the 2010–11
  the Civil Liability Act, which set some limits to the
                                                                                     financial year. Around 44% of the claims involve
  compensation. It also looks at what compensation
                                                                                     reimbursing people only for the medical expenses that
  has been awarded in previous similar cases. There
                                                                                     they incur, but these claims account for only 3% of the
  are many road-accident injury cases before the
                                                                                     payments. However, there are other minor claims1 that
  South Australian courts at any given time. Normally,
                                                                                     receive broader compensation for pain and suffering,
  the loser of the court case pays a large part of the
                                                                                     medical treatment or future financial loss; these claims
  winner’s legal fees. If the claim succeeds, both the
                                                                                     account for around 30% of the payments, which amount
  compensation and the legal fees come from the
                                                                                     to more than $105 million per annum. The remaining
  CTP insurance.
                                                                                     67% of claims payments are for people who are more
• Normally, the compensation is a once-off                                           seriously injured, have lost time from work and receive
  lump sum payment.                                                                  compensation for pain and suffering, future financial
• Compensation includes:                                                             losses and care costs.

  – past and future medical expenses, income loss and
    ongoing care costs; and

  – a payment for the person’s pain and suffering,
    worked out on a scale that allocates a fixed dollar
    amount depending on the severity of the injury.

• The driver at fault pays the CTP scheme an excess of
  $480 if they are more than 25% at fault.

  A minor claim is defined as a claim where the individual has sustained a minor injury that requires very little medical treatment, generally requires less
than a week off work and may be assisted by some physiotherapy. The majority of minor injuries include bruising, minor abrasions, sprains and strains, soft
tissue injuries including whiplash. All of these injuries are coded with either a 2005 Abbreviated Injury Scale (AIS) injury severity of 1 or 9. The AIS severity
of 1 indicates that this is a minor injury of a temporary nature that will tend to resolve without permanent residual impairment. An AIS severity of 9 indicates
there is no codable injury reported in the medical report; that is, there is no evidence of injury. The 2005 AIS is an internationally recognised coding system
used in a variety of health and trauma organisations. The AIS Injury Codes are based on medical evidence and isolate those injuries which are deemed to
be a direct result of the trauma of the accident. Each injury is assigned a numerical code from the 2005 AIS dictionary, which indicates the nature, location,
and severity of the injury.

                                          South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 04
Issues confronting South Australia’s
CTP scheme
The issues for the current CTP scheme are set out in
this section, under three headings:

1. Scheme fairness — is the distribution of benefits
   amongst injured persons equitable?

2. Scheme outcomes — does the scheme deliver
  the best recovery, rehabilitation and ongoing care
  and support outcomes for injured motorists? Is the
  premium used as efficiently as possible?

3. Scheme affordability — our CTP premiums are
  expensive compared to other states. Also, it is likely we
  will need premium increases above CPI to keep the
  scheme going.

                                 South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 05
Issues confronting South Australia’s CTP scheme Continued

Scheme fairness                                                    insurance they have bought, and on the Medicare and
                                                                   Centrelink systems.
1. The current scheme does not cover all people
  injured in motor accidents.                                      About 20% to 25% of injured road users are not
                                                                   compensated under the current CTP scheme because
Our CTP scheme is fault-based. Compensation is
                                                                   they were not injured through someone else’s fault.
available only to those who prove their injury was
                                                                   The figure is thought to be around 30% in catastrophic
wholly or partly someone else’s fault. This means many
                                                                   cases, which require long-term care and support, such
injured people are not compensated. In some cases,
                                                                   as spinal and brain injuries. The burden of care in these
the accident is no-one’s fault. It might be caused by
                                                                   circumstances falls on the taxpayer and on loved ones.
an unpredictable mechanical failure of the car or by
                                                                   The following case study provides an example: no one
a driver’s heart attack or stroke at the wheel. In other
                                                                   injured in this accident was compensated by the
cases, it is the injured person’s own fault; for example,
                                                                   CTP scheme.
if the accident occurred due to the driver’s inattention,
perhaps because they were changing the radio channel
or were distracted by children in the back seat. There
is no compensation for this. If the CTP scheme is not
available, the injured person must rely on any disability

Example 1

A husband with two young children is driving along a sealed country road. Travelling at the speed limit, suddenly a
kangaroo jumped out from the side of the road colliding with the front passenger’s side of the vehicle and through the
windscreen into the car. The driver’s head and upper body was hit with force. The car swerved out of control and left
the road hitting a tree. The driver sustained critical head and internal injuries. After being in hospital for many months he
was transferred to a rehabilitation centre with catastrophic brain injuries. He will never recover from these injuries and
requires ongoing daily care to function. He will never work again and his wife has been left to look after him and the
children. They experience ongoing financial hardship and rely on a disability pension for basic survival.

This man is not covered by CTP insurance as there is no other party at fault.

Example 2

A young motorcyclist is riding to work on a main arterial road in Adelaide. Wearing his helmet, protective clothing
and travelling within the speed limit, he has a moment of inattention and loses control of his bike. He slides with the
motorbike and hits a bollard. He suffers instant spinal injuries, paralysed from the neck down, his life is changed instantly.
He was independent prior to the accident – buying his own home, achieving his work goals, enjoying his social life. After
extensive hospital and rehabilitation he moved back to his parent’s home, who provide his primary care. He also has care
through State based disability services.

This man is not covered by CTP insurance as there is no other person at fault.

                                 South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 06
Issues confronting South Australia’s CTP scheme Continued

2. The current scheme spends more of its available             For these reasons, a good deal of the scheme’s money
   resources on minor claims.                                  is spent on cases of minor injury. Of all claims paid since
                                                               July 2009, nearly three-quarters (72%) had a claimant
Most of the accidents on South Australian roads
                                                               benefit amount of $50,000 or less. For these claims:
produce only minor injuries. Fortunately, accidents that
cause very severe injuries are few. This means that much       • 75% had no time lost from work
of the work of the system is dealing with small claims.
                                                               • 84% had less than $2,000 in treatment expenses
Even a small claim can be expensive to process. For
instance, there may be a dispute about who was at fault,       • Over 66% of claimants were represented by solicitors
with witnesses giving different accounts. The process          • The average total claim payment was $24,000
of investigating what happened is just as great, even if         including legal fees
the injuries are minor. Costs can also escalate if there is
a dispute about whether the injuries were really caused        • The average fees paid to the claimant’s solicitors was
by the accident. If the person already had an injury or          $5,000
disability, a dispute may arise as to how much effect the      The cost to the scheme for minor claims2 is over
accident had. If the parties engage lawyers, that also         $105 million per annum.
adds to the cost.

Example 3

The claimant was sideswiped by another car travelling at slow speed. There was minor damage to the claimant’s car.
The claimant was a young man who was employed as a tradesman. He didn’t report to his General Practitioner and
never took time off work. A solicitor lodged a claim on his behalf two months later. He had three General Practitioner
visits between this claim lodgement and final settlement three years later. He had not other medical treatment. He would
be diagnosed with minor soft tissue injuries. Both Plaintiff and Defendant medical reports received during the claim
indicated he had no change in work capacity or any permanent residual impairment.

The claim settled for over $50,000 including pain and suffering, future economic loss of chance,
superannuation and plaintiff solicitor costs.

    See footnote 1

                                 South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 07
Issues confronting South Australia’s CTP scheme Continued

Scheme outcomes                                                                      recovery experience was difficult for all subjects,
                                                                                     but it was particularly stressful for those claiming
1. Recovery, rehabilitation and ongoing care
   and support.
                                                                                  • Schemes that include lump sum payments may be
There is, understandably, a major focus on the financial
                                                                                    associated with worse outcomes. A study following the
aspects of CTP schemes. However, financial costs
                                                                                    outcomes of over 1000 WorkCover claimants in New
are not the only costs of injuries. A key focus of any
                                                                                    South Wales receiving compensation showed that
compensation scheme should be to get the best
                                                                                    those who were paid lump sums had poorer health
possible recovery and rehabilitation outcomes for injured
                                                                                    outcomes and worse return to work rates than those
people. These outcomes are physical, psychological
                                                                                    who received weekly benefits.5
and emotional. They are relevant not just to the injured
party, but also to their family and employer. Questions                           • It may be that lump sum payments for pain and
are sometimes asked about whether the scheme design                                 suffering, in particular, go along with a higher rate
works against good recovery outcomes.                                               of claim, slower processing and poorer recovery. In
                                                                                    Saskatchewan, Canada, in 1995, the law changed from
The design of the current CTP scheme does not
                                                                                    a fault-based compensation system with payments for
focus on rehabilitation but on monetary compensation.
                                                                                    pain and suffering, to a no-fault system without such
Also, people with severe injuries may miss out on
                                                                                    payments. In 2000, Cassidy et al.6 compared outcomes
compensation entirely or receive lump sum payments
                                                                                    for whiplash injury patients who made insurance claims
which, while large, may turn out to be inadequate to fund
                                                                                    in the last six months of the old system with two other
their lifetime care needs.
                                                                                    groups: those claiming in the first six months and those
There is some evidence that recovery outcomes are                                   claiming in the second six months of the new system.
linked to whether compensation is paid and to the type                              The researchers found a decrease in claims (by 43%
of scheme, particularly for minor injuries.                                         for males and 15% for females) between the old and
• Paying compensation in itself can be linked to worse                              new systems, as well as in the time taken from injury to
  outcomes. Yang et al. (2010) found that people with a                             claim closure. Further, they found that “the intensity of
  minor to moderate severity injury who do not receive                              neck pain, the level of physical functioning, and the
  compensation for work-related or vehicle-related                                  presence or absence of depressive symptoms were
  injuries are more likely to have better physical and                              strongly associated with the time to claim closure in
  psychological health outcomes 12 months after the                                 both systems”. They concluded that: “The elimination
  accident than those who receive compensation.3                                    of compensation for pain and suffering is associated
                                                                                    with a decreased incidence and improved prognosis
• The claim process can also be stressful. In 2011,                                 of whiplash injury.”
  Murgatroyd et al.4 undertook focus group work
  with 34 people in New South Wales injured in                                    • In 2008, Cameron et al.7 reported on the effects of a
  accidents between 2002 and 2007. Of those,                                        change in the law in New South Wales that removed
  21 had compensation claims and 13 did not.                                        pain and suffering payments for whiplash and
  Claimants identified a number of themes including:                                 changed regulations to permit earlier acceptance of
  an “adversarial, stressful claims and settlement                                  compensation claims. They concluded that the health
  process”, “an inability to move on with life during the                           of people with whiplash improved under the new law.
  claims process”, and “an extreme dislike of medico-                             At the higher end of the injury scale, the same issues
  legal assessments”. The authors reported “the injury

  Yang Z, et al. Factors that predict poor outcomes in patients with traumatic vertebral body fractures. Injury: International Journal of the Care of the
Injured 41 (2010)
  Murgatroyd DF, Cameron ID, Harris IA Understanding the effect of compensation on recovery from severe motor vehicle crash injuries: a qualitative study.
Inj Prev (BMJ) 2011 17:222–227
  PriceWaterhouseCoopers. WorkCover NSW — Health, social and economic outcomes associated with different compensation pathways, 2001
  Cassidy JD, Carroll LJ, Cote P et al. Effect of Eliminating Compensation for Pain and Suffering on the Outcome of Insurance Claims for Whiplash Injury.
NEJM 2000 342 (16): 1179–1186

                                        South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 08
Issues confronting South Australia’s CTP scheme Continued

apply, including the stress due to delay in payment. These                 injuries and their reduced capacity to work. 7, 8, 9
stresses affect not just the injured party, but also their
                                                                           If a compensation sum turns out to be inadequate for
loved ones. Improvement in this area will thus have a
                                                                           long-term care needs, or if it is used for other purposes,
multiplying effect within the community. There is also the
                                                                           then taxpayer-funded health, disability and welfare
risk to the injured person that the lump sum paid proves
                                                                           services, or the voluntary services of family and friends,
inadequate and the risk to the scheme that it is too high.
                                                                           may be needed to fill the gap. Where this occurs, it
In catastrophic cases, the CTP scheme pays large lump                      calls into question the efficiency of a compensation
sums to cover expected future care. The amount is                          scheme that does not provide adequate lifetime care
based on a number of factors, including:                                   and support.

(a) predictions of the claimant’s use of various care                      Achieving improved recovery, rehabilitation and ongoing
    services in the future and the current cost of                         care and support outcomes is a major focus of the
    those services                                                         Government’s review of the CTP scheme. The challenge
                                                                           is to do this in a cost-effective way.
(b) predictions of the claimant’s expected
    lifespan; and

(c) the discount rate which is applied to convert the
    predicted future costs into a current lump sum.

Neither (a) nor (b) can be known for sure. The claimant
might live much longer or die much sooner than
expected, and predictions of future requirements are
particularly uncertain with younger claimants, who are
a significant proportion of the catastrophically injured.
Therefore, the amount paid may ultimately prove to be
much more or less than the actual amount required.

Another problem with paying a lump sum is that it may not
be well managed or may not be used as intended. About
25% to 30% of all accident victims spend the whole lump
sum within two months of payment and 90% spend it all
within five years. As a result, many people with long-term
disabilities become reliant on social security benefits. In
addition, recipient satisfaction reduces considerably over
time after payment, due to the long-term ill effects of their

  Colin Bass Human Resources, Lump Sum Accident Compensation (Consultancy Papers 1, 1983).
  Neave M, Howell L. Adequacy of Common Law Damages. Adelaide Law Review Research Paper No. 5. The University of Adelaide: Adelaide Law
Review Association, 1992
  United Kingdom Law Commission. Personal injury compensation — How much is enough? 1994

                                     South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 09
Issues confronting South Australia’s CTP scheme Continued

2. The proportion of the premium spent                             The graph below shows a decline over the past five
   on compensation.                                                years in the percentage of the premium directly
                                                                   benefitting injured accident victims. This highlights
The average break-even CTP premium in the current
                                                                   the growing legal, medico-legal, investigation and
2011–12 year is $423. Of this amount:
                                                                   other costs.
• $270 (64%) is spent on direct benefits including
                                                                   Figure 2. Proportion of total expenditure paid for direct benefit
  compensation for medical treatment, for care, for loss           of claimant (excluding legal costs)
  of income and pain and suffering;
• $59 (14%) is paid for costs such as legal
  representation and medical reports, to establish the
  value of a claim;                                                84.0%

• $94 (22%) goes towards road safety campaigns,
  reinsurance, scheme and claims administration costs,
  premium collection fees and other expenses.

Premium is of course influenced by the cost of claims.
The key cost exposure for the current scheme is the
volume of minor claims received. South Australia’s CTP
scheme is very claim-prone. Our rate of claims per vehicle
is 140% higher than Queensland and 64% higher than
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New South Wales, even though we have less serious
injuries per vehicle than occur in those states. One reason
is that there is no minimum harm required to make a
claim. Another reason for high cost is that, even in fairly
small claims, lawyers are often used. Claimants have hired         However, measures recently foreshadowed by the
lawyers in around 75% of active claims.                            Attorney-General to change the jurisdictional limits
                                                                   in the small claims and magistrates courts may act to
As can be seen in the graph below, approximately
                                                                   moderate future increases in legal costs incurred in
$44 million was paid in 2011 to claimant solicitors from
                                                                   these matters. Raising the limits may mean some claims
the CTP fund. This cost has nearly doubled from 2005
                                                                   move down from the District Court to the Magistrates
to 2011.
                                                                   Court and some move from the general into the small
Figure 1. Plaintiff legal costs from 2005 to 2011
                                                                   claims jurisdiction. Usually, in a small claim, parties
$45,000,000                                                        cannot have legal representation and no orders for costs
                                                                   are made. In the Magistrates Court, costs claimable by a
                                                                   winning party against a losing party are calculated at a
                                                                   lower rate than in the District Court. Note however that
                                                                   these amendments have yet to pass the Parliament and
$30,000,000                                                        that it is a matter for the plaintiff, and his legal advisers,
                                                                   to determine in what jurisdiction the claim will be lodged.










                                     South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 10
Issues confronting South Australia’s CTP scheme Continued

Scheme affordability                                                          • is the least affordable premium of all Australian states
                                                                                and territories CTP schemes when compared to
The cost of CTP insurance should not become an
                                                                                average weekly earnings; and
excessive financial burden on South Australian
households. The higher the premium, the greater the                           • has experienced the fastest rate of premium growth
risk that drivers will fail to insure and the scheme will not                   of all states over the past 10 years averaging
collect enough money to remain viable.                                          increases of 5.4% per annum. The Queensland and
                                                                                Western Australian schemes, also fault-based, have
The South Australian CTP premium is the more
                                                                                experienced growth rates of 0.6% and 1.0% per year
expensive of its type in Australia. It:
                                                                                respectively in the same period.
• is the more expensive premium compared to other
                                                                              Table 1 compares South Australia’s CTP premiums
  fault-based CTP schemes, such as Queensland and
                                                                              against all Australian CTP schemes.
  Western Australia. It is more expensive than all states
  on a dollar-for-dollar basis except for New South
  Wales, which includes a no-fault component providing
  lifetime care for catastrophic injuries, and the ACT.

Table 1. Comparison of Australian State and Territory 2011–12 Metropolitan Private Passenger vehicle premiums effective as at 1 October
2011, their affordability as a percentage of State average weekly earnings and the average annual increase over the past 10 years.

                                                                       Effective premium           Class 1 premium               Average
                                                                       (metropolitan               as % of State                 compound
                                                                       private passenger           average weekly                increase over
          Scheme type                                                  vehicles)                   earnings i                    past 10 years

SA        Fault-based (common law) government underwriting,            $489.00                     38.8%                         5.4%
          outsourced claims management

NSW       Partly-fault, No-fault lifetime care (catastrophic and       $505.88                     36.1%                         3.8%ii
          under 16), private underwriting (including claims            (including lifetime
          management) of fault-based component                         care levy)

NT        No-fault, government underwriting and internal               $487.70                     35.2%                         3.1%
          claims management

ACT       Fault-based, private underwriting (including claims          $526.60                     33.5%                         2.0%

VIC       No-fault with restricted common law (hybrid),                $449.90                     33.5%                         3.9%
          government underwriting and internal claims

TAS       No-fault, government underwriting and internal               $350.00                     29.3%                         2.0%
          claims management

QLD       Fault-based, private underwriting (including claims          $307.00                     22.4%                         0.6%iii

WA        Fault-based, government underwriting and internal            $269.51                     16.5%                         1.0%
          claims management

It is predicted that the premium will have to increase by about 5% per year on average if there is no change to the
current scheme.

    State average weekly earnings are based on ABS 6302.0 Male Adult Full-time ordinary earnings March 2011 and State premiums
as at 1 October 2011
    NSW incorporated the No-fault Lifetime Care Scheme and common law amendments in 2006 causing overall increases in premium
plus LTCS levy
    Queensland enacted tort reforms in 2003 to address common law scheme design

                                      South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 11
‘Fault’ versus ‘no-fault’ based
insurance schemes
There is continuing debate in Australia over the benefits                                    recommendations in this area which, as a first step,
of no-fault injury insurance schemes. Most recently,                                        suggested the creation of Australia-wide no-fault
the Productivity Commission Inquiry into Disability                                         catastrophic motor accident insurance schemes
Care and Support recommended a no-fault National                                            by 2013.
Injury Insurance Scheme for catastrophic injuries.
                                                                                            The Productivity Commission found that no-fault injury
Federal and state governments have agreed to work
                                                                                            insurance schemes are superior to fault-based schemes
together to consider the Productivity Commission’s
                                                                                            for catastrophic injuries (see Box 1 below).

Box 1: Productivity Commission findings regarding insurance arrangements for catastrophic injury.

Existing fault-based insurance arrangements for                                             While no-fault arrangements reduce people’s freedom
catastrophic injury do not meet people’s care costs                                         to the extent (some) common law rights are removed,
efficiently. Legal costs can be substantial, and for the                                     they are likely to produce generally superior outcomes
fraction of claims compensable through insurance,                                           compared with fault-based common law systems. They:
monies recovered often fall well short of meeting
                                                                                            • provide consistent coverage across injured parties
people’s lifetime needs. Fault-based systems are also
                                                                                              according to injury related needs
problematic because:
                                                                                            • provide much more predictable and coordinated care
• court outcomes are uncertain, people’s future needs
                                                                                              and support over a person’s lifetime
  are unpredictable and poorly captured by a once-and-
  for-all lump sum, compensation is often delayed, and                                      • do not adversely affect people’s incentives to improve
  there is a risk that lump sums are mismanaged                                               their functioning following an injury

• adversarial processes and delay may hamper effective                                      • are likely to be more efficient
  recovery and health outcomes                                                              • currently perform no worse at deterring excessively
• in the presence of insurance, especially with little                                        risky behaviour, as, despite the appearance of the
  focus on risk-rating for some causes of injury, the                                         common law, it is the insurer that pays. And although
  common law does not provide incentives for prudent                                          no-fault arrangements would probably not meet all
  behaviour by motorists and other parties.                                                   people’s desire for ‘punishment’ of an at-fault party,
                                                                                              there is no clear evidence that the common law
                                                                                              achieves this either.

Source: Productivity Commission Inquiry Report, Disability Care and Support, 31 July 2011, page 789

                                             South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 12
‘Fault’ versus ‘no-fault’ based insurance schemes Continued

As well as extending compensation to more people, no-           Schemes that use periodic payments reduce this delay,
fault schemes are different in other ways. In fault-based       and payment is based on actual needs as they occur
schemes, a court usually decides whether claimants              rather than on a once-off prediction of future losses.
are entitled to compensation and how much. In no-fault          Periodic payments can also reduce anxiety for families
schemes, entitlements are usually fixed by law. No-fault         about ongoing care needs. Where a once-off lump
schemes tend to provide support or payments until they          sum is paid, there is the fear that it may run out, while
are no longer required. Fault-based schemes usually             periodic payments continue during incapacity. Also, with
provide a lump sum payment.                                     a lump sum, the family may have to act as carers and
                                                                case managers for the ongoing needs of the injured
The type of scheme that delivers a lower premium
                                                                person. Examples have been cited of elderly parents
depends on the benefits delivered (as well as the
                                                                now acting in this capacity for adult children. Their fears
frequency and seriousness of accidents). The no-fault
                                                                of “what will happen when I die?” are real concerns for
schemes in Victoria and Tasmania, for example, have
                                                                the ongoing support and care of their loved ones.
lower premiums than the South Australian scheme. In
Victoria, this is mainly due to the restricted access to        With lump sums, there is also the risk that they are
benefits for minor injuries. Queensland and Western              wasted or turn out to be inadequate. In that case,
Australia also have lower premiums than South Australia         demand is thrown onto the public health, disability
even though they have fault-based schemes, again                and welfare systems, at taxpayer expense. In a no-
because of limits on benefits. New South Wales has a             fault scheme, periodic payments reduce this risk and
restricted form of no-fault insurance cover, limited to         compensating more injured people also reduces the
catastrophic injuries and providing for care and support,       burden on the public system.
not for other losses such as income. The care and support
                                                                The current South Australian scheme allows for the
needs for catastrophically injured claimants are managed
                                                                compensation sum to be converted to a periodic
on a social support approach through the New South
                                                                payment arrangement called a “structured settlement”.
Wales Lifetime Care and Support Authority.
                                                                However, this is optional and is rarely taken up, partly
Fault-based schemes have built-in delays in payments.           because it causes complications related to taxation
First, it may take some time to establish how the accident      implications.
happened and who, if anyone, was at fault and in what
                                                                Another benefit of no-fault insurance arrangements is
proportions. Secondly, fault-based schemes usually pay a
                                                                that the legal and investigation costs are reduced, which
once-off lump sum. This means waiting until the injuries
                                                                can in turn reduce the premium paid by motorists.
are stable (that is, the patient’s condition will not change
much more), so that the payment amount can be decided.          No-fault periodic payment schemes therefore offer
Third, because benefits are not fixed by law, there may           some advantages. However, there are aspects of the
be some dispute over what would be a fair payment.              current system that some stakeholders are likely to view
Consequently, claims made in fault schemes such as              as desirable and which would be lost under a no-fault
ours take between 18 months and 3 years on average to           scheme. These aspects include:
complete. That means that in fault-based schemes there          • It allows claimants the choice to sue for and seek
is a significant delay before people are compensated for           an amount that they believe reflects their individual
any financial loss, whereas in no-fault schemes, claimants         injuries, costs and financial losses, and to receive a
have immediate access.                                            payment that they can spend as they see fit.

                                                                • A lump-sum payment finalises the claim for
                                                                  compensation, allowing the claimant to psychologically
                                                                  move on with their life.

                                                                • There may be a risk that a periodic payment system
                                                                  works against recovery and return to work.

                                  South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 13
‘Fault’ versus ‘no-fault’ based insurance schemes Continued

Not all injured people who miss out on benefits because                          However, if a driver who engaged in a reckless or illegal
of the fault requirement are necessarily blameworthy.                           act suffers a catastrophic injury requiring lifetime care
Often, the injury is due to a momentary loss of attention,                      and support and is not eligible for compensation under a
or to confusion or mistakes where drivers are travelling                        no-fault insurance scheme, it would mean that taxpayers
on unfamiliar roads or in difficult conditions. However,                         and family members are likely to bear the burden of
some cases are due to serious wrongdoing by the                                 supporting the injured person over their lifetime. It may be
injured person. Some people might think that a person                           preferable for the insurance scheme to meet those costs.
whose injuries are their own fault should not be entitled                       As the Productivity Commission Inquiry Report stated:
to the same benefits as those whose injuries are not
                                                                                   ..consider the most negligent of cases, say a highly
their fault, particularly where the fault was more than just
                                                                                   intoxicated young man, driving an unregistered
carelessness; for example, drink driving, failing to wear a
                                                                                   vehicle at speed who severely injures both himself
seatbelt or intentional self-harm. A no-fault scheme has
                                                                                   and the innocent party. Most people would regard
to grapple with how these cases should be treated.
                                                                                   it as repugnant to leave the at-fault young man
Therefore, one issue for a no-fault scheme to consider is                          without any support (surgery, rehabilitation a
whether to reduce benefit entitlements for people injured                           wheelchair), accepting the legitimacy of meeting
by their own serious wrongdoing. While penalties such as                           some basic level of need for services. Under
loss of licence, fines or even jail may apply, the community                        current fault based arrangements, a generally
may not favour providing benefits, or equal benefits,                                inadequate level of support would be provided
to an injured wrongdoer. In some cases, the injured                                through the general disability system and the
person may have injured or killed someone else. In the                             social welfare system, with the gap in injury-related
Victorian no-fault scheme, drivers convicted of dangerous                          needs filled by family, charity and other informal
driving causing death or serious injury are not entitled                           arrangements. So ultimately, the at-fault party would
to compensation. However, if they are seriously injured,                           “get by”, albeit mainly relying on taxpayer-funded
they are eligible for medical treatment and related care                           health and disability services and transferring a
services. Those convicted of driving under the influence                            significant proportion of their injury-related costs to
of alcohol or drugs, driving without a licence, stealing the                       other parties providing informal supports.10
vehicle or using it to escape police are not eligible for
                                                                                Nevertheless, there may be merit in these
income replacement.
                                                                                instances in denying access to some forms of
                                                                                compensation such as income support and pain
                                                                                and suffering payments.

     Productivity Commission Inquiry Report, Disability Care and Support, 31 July 2011 page 829

                                        South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 14
The national injury insurance
scheme proposal
The Productivity Commission has proposed that no-fault       The management of support for those suffering
insurance cover be introduced to provide care and            catastrophic injury would be ongoing. This differs
support to those who suffer catastrophic injuries. COAG      from the present system whereby the MAC has no
has agreed to investigate this proposal.                     relationship with the claimant once their lump sum is
                                                             paid. The ongoing support would be provided to all of
The most common forms of catastrophic injury are
                                                             those who suffer catastrophic injuries regardless of who
severe brain injury and spinal cord injury, which give
                                                             was at fault and would be based on their individually
rise to lifetime needs for care and support. People
                                                             assessed needs.
experiencing multiple amputations, severe burns or
blindness may also require such support. Accident
compensation schemes in some other jurisdictions (such
as Victoria, New South Wales and New Zealand) have
well established definitions and assessment tools for
catastrophic injury.

                               South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 15
Potential reform options
for scheme design
Against this background, the Government is looking at           Option 1 — No-fault cover for
how to improve our CTP scheme. In particular, this paper        catastrophic injuries
invites comment on the merits of reforms to:
                                                                Under this option, no-fault cover would be provided for
• improve the fairness of the scheme by extending               all persons with catastrophic injuries such as: moderate
  compensation entitlements to some or all injuries             to severe Acquired Brain Injury (ABI); major spinal cord
  regardless of fault                                           injury; multiple amputations; burns; or blindness. People
                                                                with catastrophic injuries would receive lifetime care and
• rebalance the compensation amounts as between
                                                                support, as well as ongoing income support.
  those who are more severely injured and those who
  suffer minor injuries                                         For claimants without a catastrophic injury the scheme
                                                                would be unchanged, that is, a lump sum payment only
• ensure that funds devoted to compensating injured
                                                                for those who can demonstrate that another party was
  motorists are maximised, used as intended and
                                                                at fault.
  achieve the best health, recovery and rehabilitation
  outcomes possible                                             Catastrophic claims would be managed on a social
                                                                support approach, not through a court process. Claims
• keep premiums affordable both now and into
                                                                consultants would become ‘relationship managers’ who
  the future.
                                                                provide ongoing support to the person and their family.
The Government considers that there may be merit                There would be no lump-sum compensation for the
in some form of no-fault insurance cover, particularly          future care costs; the scheme would meet the claimant’s
for those experiencing catastrophic injuries in motor           care and support costs as they arise for their lifetime. That
vehicle accidents. This is largely on the grounds of            means more certainty that the claimant’s lifetime needs
fairness and to improve the recovery and rehabilitation         would be met, but also means there is no lump sum for
of catastrophically injured road users and their families,      the claimant to spend as they choose. The scheme could,
particularly those who do not receive assistance under          however, entitle claimants to choose a care-and-support
the current scheme.                                             service package that best suits their individual needs.
A major concern for a no-fault scheme for catastrophic          The New South Wales Lifetime Care Scheme allows
injuries is the cost it will add to the premium if no other     participants choice in allocation of funds. For example,
changes are made. Given the already high premiums               the participant can chose their own carer, participation in
in South Australia, the Government is concerned that            community activities and where to allocate care or home
a further increase would strain household budgets.              modification funds. The goal is to provide a service that
However, the Government is also keen to see the                 not only addresses the financial burdens of care but also
CTP scheme positioned to better support the long-               provides the best physical, psychological and emotional
term health and wellbeing of injured accident victims,          outcomes for the participant and their family.
particularly those with ongoing support needs. One              Participants would have less need for lawyers; they would not
possible way to meet both aims is to consider some              have to prove what caused the accident and there would
changes to payments of benefits within the current               be less room for dispute about entitlements.
scheme that would reduce costs. This is explored in the
                                                                It is estimated that a scheme that provided lifetime
following options.
                                                                care and support and periodic income payments on a
The options presented below are not the only possible           no-fault basis to those suffering catastrophic injuries,
approaches and there may be features of each that               could increase the average break-even CTP premium
could be combined.                                              by between $60-$70 per vehicle per year (if no other
                                                                changes were made to the existing scheme).

                                  South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 16
Potential reform options for scheme design Continued

These estimates do not taken into account any cost                                 One possibility is to move from our current points scale
reduction due to limiting the entitlements of severely                             to a measure of Whole Person Impairment (WPI), similar
injured persons whose fault contributed to their injuries.                         to some other states. Pain and suffering payments
                                                                                   would be based on WPI evaluations using Australian
This option provides catastrophically injured motorists
                                                                                   Medical Association (AMA) guidelines, and only injuries
with ongoing income support as well as care. Another
                                                                                   with more than 10% WPI would attract payments for
option is to only provide lifetime care and support on a
                                                                                   pain and suffering. Medical panels would arbitrate any
no-fault basis to all catastrophically injured motorists, but
                                                                                   disputes. Experience in Victoria and New South Wales
retain the fault-based, lump-sum payment arrangements
                                                                                   suggests that this approach has delivered consistency,
for replacing lost income. Such an option is estimated
                                                                                   providing similar compensation for similar impairments.
to be marginally more expensive, adding $65-$75 per
                                                                                   Attachment 1 shows what types of injuries may fall
vehicle per year to the average break-even premium.
                                                                                   above or below the 10% WPI threshold. While those
Option 2 — A no-fault catastrophic injury scheme                                   10% and below would no longer be eligible for a pain
combined with a reformed fault-based scheme                                        and suffering payment, treatment costs and loss of
for non-catastrophic injuries.                                                     income would still be covered.
This option combines the reforms proposed in Option                                This reform could have a broader impact. The present
1 with adjustments to current benefits for lower-level                              points scale is not limited to road accident cases. A
injuries. In our current scheme, compensation amounts                              change would affect entitlements to compensation for
are skewed towards lower level injuries. A good deal                               all negligence claims irrespective of the cause of injury.
of the cost of the Scheme is payments for people with                              That is, it goes beyond the CTP scheme and affects
minor injuries that claim for non-economic loss and                                public liability and other insurers. It may be that reform of
potential future losses. Legal costs are another pressure                          this scale should only affect road accidents or arguably,
on the scheme. This option would address those factors.                            there is a case for it to apply to all accidents covered by
The reforms listed below are based on features of                                  this Act and comment is invited.
schemes interstate.
                                                                                   It is estimated that this option could yield a decrease of
POTENTIAL BENEFIT REFORMS:                                                         $20-$30 in the average break-even CTP premium.
(1) Reform of payments for pain and suffering                                      (2) Claimants’ legal fees
Currently, a claimant who can show just one-week’s                                 As discussed, claimant legal costs funded by the
impairment receives a pain and suffering payment. As                               Scheme have been increasing. If a claim succeeds, most
discussed above, research from New South Wales11                                   of the lawyer’s fees are paid by the scheme. For minor
showed a significant improvement in rehabilitation                                  injuries, these costs can form a significant proportion
outcomes after a change in the law which removed pain                              of the overall payment made for the claim, adding to
and suffering payments for whiplash claimants. There may                           cost pressure on the scheme. As has been done in
be a case for changing our current threshold for pain and                          Queensland, a possible reform could be that claimants’
suffering payments.                                                                legal fees would not be reimbursed if the benefit paid to
                                                                                   the claimant is $30,000 or less, and would be limited to
                                                                                   $2,500 if the benefit is between $30,000 and $50,000.

   Cameron I, Rebbeck T, Sindhusake D, et al. Legislative change is associated with improved health status in people with whiplash.
Spine 2008 Feb 1;33(3):250–4.

                                         South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 17
Potential reform options for scheme design Continued

At the same time, the process of making a claim would            proposes reducing any lump sums for lost earnings to
need to be reviewed to make it as simple and transparent         90% of the claimants’ average earnings for catastrophic
as possible so that claimants do not need to hire lawyers if     injuries and 80% for non-catastrophic injuries.
they do not wish to, subject to adequate protections for
                                                                 Given the current high cost of our scheme, motorists may
the claimant.
                                                                 prefer an insurance product that replaces a majority of, but
It is estimated that this option could result in a decrease      not all of, their lost income in exchange for a lower annual
of up to $10 in the average break-even CTP premium               premium cost. Also, the public may prefer a scheme that
due to decreased legal costs and subsequent reduction            includes a financial incentive to maximise recovery.
in minor claims.
                                                                 It is estimated that this option could yield a decrease
(3) Removal of payment for certain services and future           of between $10-$20 in the average break-even
    care for lower level injuries                                CTP premium.

Currently injured persons can claim payments for                 (5) Medical excess
free care and household help given to them by family
                                                                 This option proposes setting a medical excess; that
members after the injury, even in non-catastrophic
                                                                 is, a claimant would bear some of their own medical
cases. The Queensland CTP scheme does not provide
                                                                 expenses (unless eligible to have them paid by Medicare
compensation for these services in minor claims.
                                                                 or a private insurer), before becoming eligible to claim any
An option could be to restrict entitlement to this form of       scheme benefits. This excess may reduce the volume of
compensation. The claimant would need to show that               minor medical-only claims and in turn reduce the need
this help was needed for at least six hours per week             for claims management services. The Victorian Transport
and for at least six months, and that the same kind of           Accident Compensation (TAC) scheme currently has a
service was not needed prior to the injury. This reform          medical excess of $564. If South Australia adopted
recognises that it is reasonable to assume any caring            a similar approach, it is estimated that the average
family member would provide at least some of these               break-even CTP premium could drop by up to $10.
services in any event.
                                                                 SUMMARY OF BENEFIT REFORMS
It is estimated that this option could yield a decrease of
                                                                 If all of the above reforms were combined, it is estimated
up to $10 in the average break-even CTP premium.
                                                                 that they could yield a decrease of between $70-$80
(4) Reduced economic loss compensation                           in the average break-even CTP premium. This is due to
                                                                 the combined interaction of all reforms creating even
The scheme reimburses loss of income caused by the
                                                                 greater savings than the individual reforms in isolation.
injury, (such as lost wages). Compensation amounts are
                                                                 When combined with the no-fault catastrophic insurance
based on actual past loss of earnings and an estimate of
                                                                 contained in Option 1, the net result could be a decrease
future loss of earnings, but capped at twice the average
                                                                 of between $10-$20 in the average break-even
weekly earnings; that is, high-income earners do not
                                                                 CTP premium.
get full replacement of their lost earnings. This option

                                   South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 18
Potential reform options for scheme design Continued

The following table outlines the specifications for Option 2.

Scheme feature            Description of feature modeled

Treatment costs           Reasonable medical and treatment costs. A $564 medical excess per claim (potentially covered by
                          Medicare or private health insurance).

Care (non-catastrophic)   Future care requirements paid as a lump sum at settlement.

Care (catastrophic)       Periodic rather than lump sum payments. Home help and attendant care for services which the claimant is
                          medically unable to perform themselves. Benefits are as approved by case manager for up to 12 weeks and
                          then based on a formal assessment if required for longer. Aids and appliances as recommended by medical

Economic loss             For claimants with a catastrophic injury, income replacement benefits are paid on a periodic basis.
(catastrophic no-fault)   Benefits are based on the worker’s own average weekly earnings with replacement levels set at 90%. The
                          maximum income replacement is capped at 2 x State average weekly earnings (ABS). Income replacement
                          is not provided to claimants who were unemployed or receiving Centrelink payments or other income
                          replacement. Earnings from investments or financial sources alternative to employment are not considered
                          as part of the evaluation of the claimant’s own AWE.

                          The benefit continues until:

                            o Pension eligibility age;
                            o death; or
                            o worker returns to work

                          whichever occurs first.

                          Uninsured or unknown-driver accident victims can claim under the Nominal Defendant Scheme,
                          as at present.

                          For some serious offences, a loss of entitlement could be considered, such as no access to income benefits
                          and/or lump sum benefits.

Economic loss             Economic loss paid at 80% of workers’ own average weekly earnings as a lump sum.
(non-catastrophic)        First week not compensated.

Non-economic loss         Payments based on a fixed scale determined by the level of WPI (0%–100%). No benefit is payable
(all)                     for claimants with physical injury of 10% WPI or less. Maximum award is indexed and set at $300,000
                          for WPI of 70% or more.

Other non-catastrophic    Voluntary services, consortium, future care and home help are not accessible to claimants with
damages                   10% WPI or less.

Legal costs               No claimant legal fees will be paid if the compensation is less than $30,000; fees will be limited to
(non-catastrophic)        $2500 if the compensation is between $30,000 and $50,000.

Dispute mechanism         For catastrophic claimants, initial internal CTP informal review. Impairment disputes directed to medical
                          panel for all claimants.

                          Non-catastrophic claimants, impairment disputes through medical panel. Informal conferencing.

Impairment evaluation     WPI evaluation aligned to AMA guidelines. Secondary psychological impairment is not considered
                          as part of the WPI evaluation.

Premium setting           Premium class relativities are set-based on cost-sharing against the class of vehicles involved in
                          the accident if catastrophic claim and costs against the class of vehicle at-fault in the accident if

                                  South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 19
Potential reform options for scheme design Continued

Option 3 — Fully no-fault scheme                             Persons with up to and including 10% WPI would not
                                                             be eligible for a pain and suffering payment. Those with
This option would remove fault assessment in all cases
                                                             WPI over that would receive a fixed sum based on the
and would provide periodic payments instead of lump
                                                             percentage WPI, up to a maximum of $300 000 for
sums, as well as reducing compensation for lower level
                                                             those with 70% or greater WPI.
injuries (and associated legal fees) to contain costs.
Income support benefits would be restricted to 18             It is estimated that this approach could yield a
months for claimants with less than 30% WPI, and 3           decrease of between $30-$40 in the average
years where WPI is between 30% and 50%. Income               break-even CTP premium.
would be replaced at 90% for catastrophic cases and
80% for others.

                               South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 20
Potential reform options for scheme design Continued

The following table outlines the specifications for Option 3.

Scheme feature           Description of feature modeled

Treatment costs          Reasonable medical and treatment costs. A $564 medical excess per claim (potentially covered by
                         Medicare or private health insurance).

                         Consideration will be made for a test at three years of the ongoing need for payment of treatment costs if
                         the claimant has less than 30% WPI.

Care                     Home help or attendant care for services which the claimant is medically unable to perform themselves.
                         Benefits are as approved by case manager for up to 12 weeks and then based on a formal assessment if
                         required for longer. Aids and appliances as recommended by medical provider.

Economic Loss            The maximum income replacement.

                         Income replacement benefits paid on a periodic basis if the claimant is not working and not fit for work
                         (established via a medical assessment) with an excess for the first week off work.

                         Benefits are based on the worker’s own average weekly earnings with replacement levels set at:

                           o 80% if not catastrophically injured; and
                           o 90% if catastrophically injured claimant.

                         For those who partially return to work, the benefit is a top-up benefit.

                         Earnings from investments or alternative financial sources to employment are not considered as part of the
                         evaluation of the claimant’s own AWE.

                         The maximum income replacement is capped at 2 x State average weekly earnings (ABS)

                         The benefit continues until either:

                           o   Pension eligibility age or death;
                           o   worker returns to work;
                           o   1.5 years if less than 30% WPI; and
                           o   3 years if 30%–50% WPI.

                         whichever occurs first.

                         Uninsured or unknown-driver accident victims can claim under the Nominal Defendant Scheme as
                         at present.

                         For some serious offences, a loss of entitlement could be considered, such as no access to income benefits
                         and/or lump sum benefits.

Non-economic loss        Payments based on a fixed scale determined by the level of WPI (0%–100%). No benefit is payable
(all)                    for claimants with 10% or less WPI for physical injury. Maximum award is indexed and set at $300,000 for
                         WPI of 70% or more.

Death benefit             Lump sum benefit of $300,000 (in line with maximum pain and suffering award)

Legal costs              Allowance for minor defendant costs related to disputation

Dispute mechanism        Initial internal CTP informal review. Impairment disputes directed to medical panel.

Impairment evaluation    WPI evaluation aligned to AMA guidelines. Secondary psychological impairment is not considered as part of
                         the WPI evaluation

Premium setting          Premium class relativities are set-based on cost sharing against the class of vehicles involved in
                         the accident.

                                  South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 21
        Summary of impact of premium
        for each of the options
        Option       Scheme option                                                          Estimated impact                 Estimated impact on metropolitan
                                                                                            on the average                   private passenger vehicle
                                                                                            break-even premium               premium (Class 1 premium)

       1             Catastrophic no-fault scheme                                           $60-$70 increase                 $65-$75 increase
                     inclusive of all benefits

       2             A no-fault catastrophic injury scheme combined                         $10-$20 decrease                 $10-$20 decrease
                     with a reformed fault-based scheme for
                     non- catastrophic injuries

       3             Full no-fault scheme                                                   $30-$40 decrease                 $35-$45 decrease

       Cost                                                                                                    105 D E
                                                                                                                       CR EAS E
     Pressures                                                                                           5-$                    VS
                                                                                                    $9                               OP
                                                       CREASE                                                                             TI
     National Injury                             70 I N
Insurance Scheme (NiiS)                     $6

                                                                                                        5 DECREASE

 +   Fairwork Australia
                                                                                                      $8           VS

    (FWA) increases


                                                                               Option 1

                          $400         Existing                                                                      Option 2
                                                                                                                                                   Option 3

                                                                           No-Fault cover for
                          $250                                             (to adopt National
                                                                            Injury Insurance                         Option 1 plus                 Fully No-Fault
                                                                                Scheme)                               Tort reform                     Scheme


                                                                               0 D
                                                                                           EAS E

                                                                                          40 D
                                                                                               ECR EAS E

        Independent Actuarial and Accounting organisations were commissioned to provide costings of the new Scheme options presented for
        consideration in this paper. The assumptions such as economic, claim related, superimposed inflation and claims handling expenses for
        each costing are reasonable and consistent with assumptions adopted in the current Scheme.
        These costings are considered to be within a reasonable range. However, the actual costs that emerge may vary from those costs
        presented in this paper.

                                            South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 22
Scheme management issues
South Australia’s Compulsory Third Party insurance            The government motor accident authorities in those
scheme is managed by the Motor Accident Commission            states act as regulators of the CTP insurance market
(MAC), a State Government statutory authority.                rather than the sole insurer. In New South Wales there
                                                              are seven insurers currently offering CTP insurance at
The specific functions undertaken by MAC include:
                                                              differing premium rates, subject to approval by the
• Setting premiums (subject to the Treasurer’s power to       Motor Accident Authority. In Queensland, there are six
  override): Premiums can vary based on vehicle type,         insurers, offering differing premiums within an upper
  vehicle use, where garaged and whether the vehicle          and lower band established by the Motor Accident
  owner can claim an input tax credit under the GST law,      Insurance Commission.
  but no other factors.
                                                              In New South Wales, a government authority delivers
• Collecting premiums: This is done through the vehicle       the care and support needs for those who suffer
  registration process.                                       catastrophic injuries; the authority is funded by a levy
• Managing claims: This is outsourced to the private          imposed on CTP premiums charged by the private
  sector. Allianz is the current provider of claims           insurers who underwrite the remaining aspects of the
  management services and is authorised to pay or             compensation available to injured motorists under a
  litigate claims on behalf of the CTP fund.                  fault-based scheme.

• Acting as the “nominal defendant”, that is, covering        In New South Wales, the CTP premiums charged by
  claims where the vehicle at fault cannot be identified,      the private insurers to individual motorists can vary
  or is uninsured.                                            depending on a range of factors including:

• Managing the investment of premium monies.                  •   accident history
                                                              •   driver’s age
• Promoting road safety.                                      •   vehicle age
MAC’s liabilities are guaranteed by the Government.           •   type of vehicle
The Treasurer has established solvency requirements           •   purpose for which the vehicle is used
for MAC to ensure that the CTP fund arrangements are              (private or business)
managed prudently.                                            Many of the private insurers in that state provide
Other insurers can be licensed to provide CTP insurance       additional services beyond those required by the
under the Motor Vehicles Act 1959, but successive             legislation that establishes the compulsory third-party
state governments have chosen to maintain a single            injury insurance requirements. For example, limited
(government entity) insurer arrangement since 1975.           benefits are offered by some of the insurers to at-fault
Under the Act, while MAC remains the sole insurer, other      drivers in certain circumstances, and some insurers may
parties may only apply to become a CTP insurer on an          provide discounts on other insurance products if CTP
invitation from the Minister for Transport.                   insurance is placed with them.

As in South Australia, CTP schemes in Victoria,
Tasmania, Western Australia and the Northern Territory
are underwritten by the government. However, in New
South Wales and Queensland, private insurers are
allowed to offer CTP insurance in a competitive market.

                                South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 23
Some questions for consideration
and feedback
1. Would a no-fault scheme be preferable to the current        5. If there is a no-fault scheme, should there be
   fault-based CTP scheme?                                        exclusions based on illegal acts? Or is punishment
                                                                  under the criminal law sufficient?
2. Should a no-fault insurance scheme be available to
   all injured accident victims or should it be only for       6. If there were exclusions or restrictions for illegal
   catastrophic cases?                                            or reckless behaviour, should all benefits be denied or
                                                                  only some forms of compensation (e.g. pain
3. If restricted to the most serious injuries, should income
                                                                  and suffering)?
   replacement be paid to all injured persons, including
   those at fault, or should those at fault only have their    7. Which categories of driving behaviour should
   care and support needs met from the scheme?                    be subject to restrictions or exclusions from
                                                                  compensation (e.g. driving under the influence,
4. Would the benefits of a no-fault catastrophic care
                                                                  speeding, street racing, fleeing from police, failing to
  scheme justify an increased CTP premium in
                                                                  wear a seatbelt, riding outside the vehicle, etc.)?
  South Australia? Or should other benefits, for lower
  level injuries, be reduced to offset the extra cost?         8. If there were exclusions or restrictions, should the
  Specifically:                                                    injured person be penalised for illegal driving behaviour
                                                                  that did not directly cause the accident; for example,
  4.1. Should pain and suffering payments be available
                                                                  driving while disqualified or driving an unregistered
       to all injured motorists or restricted to those
                                                                  vehicle? Or if the driver was using the vehicle for
       with substantial injuries, as occurs in most other
                                                                  criminal purposes unrelated to the accident; for
       state schemes?
                                                                  example, making a delivery of illegal drugs?
  4.2 Should the scheme fully replace lost income
                                                               9. Do you have any comments on the way the CTP
      or would some lower proportion of income
                                                                  scheme is managed, including the potential
      replacement be satisfactory if it resulted in a
                                                                  involvement of private insurers?
      reduced premium?
                                                               You may have other questions and comments. Please
  4.3 Should restrictions be placed on the
                                                               feel free to include your comments on any aspect of the
      reimbursement of legal fees for smaller claims?
                                                               proposals discussed.
      That is, to what extent should motorists’ premiums
      pay for claimants’
      legal fees?

  4.4 Should the scheme introduce an excess for
      medical costs? If so, what would be an appropriate

                                 South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 24
Invitation to comment
Comments can be sent to
or by post marked confidential to:

     CTP Green Paper
     C/o Revenue and Economics Branch
     Department of Treasury and Finance
     GPO Box 1045
     Adelaide SA 5001

by 27 April at 5.00pm. Please indicate the number of the
questions you are responding to. All comments will be
considered before the Government makes any decisions
about changes to the CTP scheme.

The CTP Green Paper can be downloaded from

Please note that the Government has not yet
made any decisions and you should not assume
that any of the changes discussed in this paper
will necessarily happen.

Do not include any confidential information
in your responses, as submissions may be
published or may be available to applicants
under the Freedom of Information Act.

                               South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 25
Attachment 1 Whole Person
Impairment (WPI)
Guide to impairment level versus motor vehicle accident injuries
Source: MAA MAS impairment reviews

WPI%     Injury description

0%       Soft tissue injuries — neck, back (no evidence physical)

1%       Crush fracture of left ankle and soft tissue injury of the left medial heel.

1%       Cervical spine (STI); Thoracic spine (STI); Lumbar spine (STI);Scarring

1%       Vitreous Floaters; Right Visual Field Loss

1%       Tinnitus

2%       Fractured Pelvis and Tibia; Left knee — soft tissue injury; Lumbar spine — soft tissue injury

3%       Displaced fracture of the mid-shaft right clavicle, fractures of the right 7th, 8th and 9th ribs,
         fracture of the right 2nd metacarpal head and various soft tissue injuries.

3%       Convergence insufficiency — right eye blurred vision

4%       Comminuted fracture of the right radius and ulna

0 - 5%   Whiplash; soft tissue injury neck, back

5%       Right Hip — contusion with residual trochanteric bursitis; Lower back — soft tissue strain

5%       Pelvis — fracture into acetabulum associated with diastasis of the pubic symphysis; Avascular necrosis of the right head of

5%       Right ankle — possible fracture and abrasions; Left shoulder — dislocated; Neck — soft tissue injury;
         Left scaphoid — fracture; Back — strain

5%       Pelvis and sacrum — multiple fractures; Lumbar spine — soft tissue injury

5%       Cervical spine — fracture of spine with displacement

5%       Stomach — ulcer due to anti-inflammatory medication; Left shoulder — traumatic capsulitis, soft tissue injury;
         Neck — aggravation of degenerative change

6%       Left thigh — soft tissue injury

6%       Fractured left femur; Left knee — soft tissue injury

6%       Right tibia — compound fracture; Right fibula — compound fracture

6%       Right leg — compound fracture right tibia and fibula; Left leg — compound fracture right tibia and fibula

7%       Neck — aggravation of previously asymptomatic spondylotic degenerative changes;
         Right Leg — intertrochanteric fracture of right neck of femur

7%       Full thickness laceration of the left cornea;

8%       Right wrist arthroscopy

9%       Left wrist and hand — soft tissue and tendon injury

9%       Vestibular impairment; Severed olfactory nerve/loss of sense of taste; Tinnitus

9%       Thoracic aorta — tear

10%      Fractures of the Left tibia, fibula and patella

11%      Thoracic spine — soft tissue injury; Lumbar spine — soft tissue injury; Left thumb — soft tissue injury (laceration); Cervical spine
         — soft tissue injury; Right knee — laceration and scarring; Right shoulder — soft tissue injury; Chest — soft tissue injury and
         fractures; Coccyx — fracture

                                     South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 26
Attachment 1 — Whole Person Impairment (WPI) Continued

WPI%   Injury description

11%    Fractures to both ankles

11%    Left leg — fractured tibia and fibula; Left ankle — soft tissue injury; Lumbar spine — soft tissue injury;
       Left lower extremity — scarring

11%    Lumbosacral spine — fractures of transverse process of L1 and 2; Right knee — partial medial meniscectomy; Left knee —
       strain; Right ulna — fracture of olecranon; Left knee — complete ACL rupture/radial tear of medial meniscus; Left leg — nerve
       dysfunction; Scarring — right elbow, left knee (surgical scarring), right knee (surgical scarring)

11%    Neck — injury C5/6; Left scaphoid — fracture; Left clavicle — fracture

12%    Left foot and ankle — tendon/ligament/anterior plafond fracture tibia/osteochondral lesion subarticular fracture

12%    Cervical spine — soft tissue injury; Thoracic spine — fracture; Right shoulder — AC joint;
       Right knee — soft tissue injury

12%    Traumatic Optic Neuropathy

13%    Fracture (forearm) and a full thickness tear of the dorsal transverse part of the scapholunate ligament (in the wrist); fracture
       of the head of the radius on the left side, right rib fracture, traumatic anterior pain to both knees, and multiple abrasions to the
       right side of body.

13%    Left Arm — Fractured radial styloid; Cervical Spine — musculoligamentous injury

13%    Right knee fracture; Right ankle ligamentous injury; Neck — ligamentous injury

13%    Head injury; Right temporal bone — depressed fracture; Neck — strain; Back — strain

14%    Fractured Left Clavicle and head laceration

14%    Right ankle — compound fracture; Right femur — fracture; Right tibia — fracture

14%    Perforated small intestine; Fracture of transverse process at L2

15%    Left shoulder — rotator cuff tear

15%    Left Knee — Rupture of the Anterior and Posterior Cruciate Ligaments

15%    Open fracture left tibia; Scarring left knee

15%    Cervical spine (disc bulge and protrusion); Thoracic spine (disc bulge and protrusion);
       Lumbar spine (disc bulge and protrusion)

15%    Head Injury/Vertigo; Cervical Spine —soft tissue injury; Lumbar Spine — soft tissue injury;
       Right and Left Shoulders — soft tissue injuries; Left ankle — soft tissue injury

15%    Ruptured testis

16%    Neck — soft tissue injury; Right arm — neuropathic pain

16%    Fractured Mandible; Multiple facial fractures; Altered smell and taste; Altered vision due to fractures

17%    Post-Traumatic Stress Disorder; Major Depression; Alcohol Abuse

18%    Lower back and neck pain, right and left rotor cuff syndrome; shoulder injuries

18%    Left humerus — dislocated transverse fracture; Left shoulder — injury to rotator cuff and deltoid; Left tibia — displaced fracture;
       fracture of the lateral malleolus; Left fibula — displaced fracture; Cervical spine — soft tissue injury; disc disruption at C6/7
       and C7/T1; Left arm/ shoulder — scarring; Left lower leg — scarring.

19%    Left pelvis involving the left superior and inferior pubic rami and sacrum — fractures;
       Lumbar spine — contusion causing stiffness and pain

                                  South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 27
Attachment 1 — Whole Person Impairment (WPI) Continued

WPI%   Injury description

19%    Fractured Left Femur; Fractured Right Scapula

20%    Right shoulder — lesion with secondary impingement syndrome; tendonopathy, partial tear of rotator cuff;
       Neck — contusion / strain; aggravation pre-existing degenerative changes; Lower back — contusion / strain aggravating pre-
       existing degenerative changes: multiple disc bulging; Both legs- radiating pain

20%    Wedge fracture of the T12 vertebra (thoracic spine injury)

20%    Thoracic spine — fractures T11 and T12

20%    Closed Traumatic Brain Injury multiple injuries including head laceration; Blurred Vision

22%    Right foot/ankle — fractured right talar bone; Right 5th finger — fracture; Left 4th finger — fracture

22%    Left knee — chondromalacia patella; Back — compression fractures of 5th, 6th and 7th thoracic vertebrae

24%    Ruptured pancreas

25%    Left and Right Hands — bilateral fractures of numerous fingers; Back Injury — strain; Right Patella Tendon — rupture

25%    Fractured Ribs and Pneumothorax

25%    Abdomen and bowel — soft tissue injury with large intra-abdominal tumour

                                 South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 28
  Attachment 2 comparison of
  fault and no-fault schemes
NO-FAULT          Option 1 – no-fault Option 2 — full            Victoria               NSW                Tasmania        New Zealand
                  catastrophic        no-fault

No-fault          Limited —               Yes                    Yes                    Limited —          Yes             Yes
applicable        catastrophically                               long-term care
                  injured persons

Medical           Reasonable              Reasonable costs       Reasonable             Necessary          $400,000        Cost of acute
and               costs                   Claim level excess:    costs                  treatment,         Unlimited if    treatment in
Rehabilitation                            $564                   Family excess:         rehab and care     > two hours     public hospitals;
                                                                 $564                   for children up    care a day      partial or full
                                                                                        to 16 years.       required        payments for
                                                                                        Lifetime care                      a range of medical
                                                                                        and support for                    and specialist
                                                                                        catastrophically                   providers including
                                                                                        injured                            surgery. Wide
                                                                                                                           range of rehab
                                                                                                                           incl. home
                                                                                                                           and equipment

Income —          First five working       First five working      First five working      N/A —              First seven     Five working
excess days       days; Not cover         days; Not cover        days; Not cover        common law         days            days
not covered       Commonwealth            Commonwealth           Commonwealth           component
                  income e.g.             income e.g.            income e.g.
                  Centrelink,             Centrelink,            Centrelink,
                  Disability pensions,    Disability pensions,   Disability pensions,
                  Defence pensions        Defence pensions       Defence pensions

Maximum           90% if 50% WPI or       80% earnings           80% earnings           N/A —              80% earnings    80% earnings
weekly            more; 2 x SA state      if <50% WPI            up to $1035 pw         common law         up to 3x Tas    up to $1692.50 pw
earnings          average earnings        90% earnings           Loss of earnings       component          state average
                  Common law              >=50%, 2 x SA state    $875 pw Loss of
                  all other               average earnings       earning capacity

Time limit —      Up to retirement        18 months Loss         18 months Loss         N/A —              Two years       Superannuation
Economic          if more than            of earnings            of earnings            common law         usual work      age or until
                  50% WPI                 Three years Loss       Three years Loss       component          Five years      person is
                  N/A —                   of earnings if more    of earning capacity                       any work        assessed as
                  common law              than 30% WPI           if more than 30% WPI                                      no longer
                  all other               Up to retirement       Up to retirement                                          incapacitated
                                          if more than           if more than
                                          50% WPI                50% WPI

Non-economic      N/A — common            <=10% none             <=10% none             N/A — common       None            <10% WPI none
loss/impairment   law component           Skewed sliding         Skewed sliding         law component                      10% or more
lump sum                                  scale based on         scale based on                                            scaled;
payment                                   WPI up to 70% WPI      WPI up to 99% WPI                                         Range from
                                          Max = $300K            Range from $6340                                          $2,500 to
                                                                 to $289,960                                               $100,000

Impairment        N/A — common            None                   Yes. Varies            N/A —              None            None
annuity           law component                                  considerably           common law
                                                                 depending on WPI
                                                                 >10% and age.
                                                                 Only paid after 1.5
                                                                 years if no Loss of
                                                                 learning capacity
                                                                 payments; payments
                                                                 cease after 3 years

                                         South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 29
  Attachment 2 — comparison of fault and no-fault schemes Continued

COMMON           Current              Option 2—             Victoria              Queensland       West Australia NSW
LAW              South Australia      all tort reforms

Common           Yes                  Yes                   Yes — limited to      Yes              Yes             Yes
law applicable                                              serious injury only

Access           Impairment for       Medical excess        Pain and suffering    No legal costs   Threshold for   Pain and
                 >=7 days or          $564; Pain and        access if more than   if customer      Pain and        suffering only
                 >= $3590 medical     suffering,            10% WPI; Loss of      benefits          suffering       if >10% WPI
                 expenses subject     voluntary services,   earnings access if    <=$30K;
                 to CPI               consortium            >30% WPI              limited legal
                                      payments access                             on <=$50K;
                                      if more than 10%                            no voluntary
                                      WPI; no legal                               services,
                                      costs if customer                           consortium
                                      benefits <=$30K;                             payments
                                      limited legal on

Economic         Impairment for       past loss if          $45,030               None             None            None
loss             >=seven days         >=7days
settlement       or >= $3590
threshold        medical expenses
                 subject to CPI

Economic         $2,871,540           $2,871,540            $1,013,560            3x AWE           3 x AWE         $4129 per week
loss             (subject to CPI)     (subject to CPI);
maximum                               Eco loss paid at
                                      80% earnings if
                                      less than 50% WPI,
                                      90% if above
                                      50% WPI

Pain and         Impairment for       Greater than          Greater than          None             $17,000         Greater than
suffering        >=seven days or      10% WPI               10% WPI                                                10% WPI
threshold        >= $3,590 medical
(non-economic    expenses subject
loss)            to CPI

Pain and         $303,980             $300,000              $450,460              $250,000         $337,000        $408,000

                                     South Australia’s Compulsory Third Party Insurance Scheme 2012 Green Paper 30
March 2012

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