Jurisdictional Comparison of CTP

Schemes around the Globe

Peter McCarthy & Lisa Moran

Canadian/US Co-authors:

Liam McFarlane, Scott MacNeil, Walter Kopec

IntroductionPurpose: Compare and contrast mandatory motor insurance (i.e.

CTP) across the globe and identify best-in-class across the

following areas:

• Coverage & benefits

• Affordability

• Road safety

• Claims experience

• Fraud and exaggerated claims

BackgroundIn 2017, EY was selected to perform an independent review of ICBC, the

monopoly public insurer in British Columbia (Canada). The scheme is facing

serious challenges including:

• More accidents (23%) and more bodily injury claims (28%) since 2012

• Significant rise in the number and size of minor injury claims

• Premiums are the 2nd highest in Canada, yet insufficient to cover claims

Data sources:

Content of this presentation is based on publically available information

which has not been verified. It is intended to be illustrative only and should

not be used for other purposes. Scheme experience may have changed

since the report was prepared.

Jurisdictions

• Australia - NSW, Queensland, Victoria

• Canada – selected provinces

• US – selected states

• UK

• NZ

We have not included details of Australian and NZ scheme in this presentation – they are included in the EY report

Product - Canada“Auto-insurance” is required by law – most provinces require proof of

insurance before a vehicle can be registered. Underwriting models vary

- public, private or “choice” models exist

Mandatory coverage falls under several types:

• Accident benefits (“no-fault benefits”) are mandatory in almost every

province but amounts vary greatly

• Third-party liability – the right to sue the at-fault driver for damages

not covered by accident benefits in most provinces. If the amount >

liability limit in policy; the balance falls back to policyholder. Minimum

mandatory coverage is usually CAD$200k

• Optional coverage – optional add-ons such as extended liability,

collisions, fire/theft, family protection cover or comprehensive plans.

Example benefits – British Columbia‘Basic Autoplan’ is the mandatory product (publically underwritten). Provides no-

fault accident benefits (low) and fault-based common law (limited to $200k)

Optional coverage can be purchased (privately underwritten) to top-up

common law liability limits (most policyholders choose extra $1m - $10m)

Basic Autoplan CoverageOptional

Coverage

Third party Liability Up to $200,000 of claimant’s injury costs and vehicle damage costs (up to $1 million for commercial)

Fire, theft,collision, etc.

Accident Benefits

(no-fault)

Wage loss (max $300 per week), medical and rehabilitation costs up to $150,000 per person, funeral benefits of $2,500

Underinsured Motorist protection, Hit & Run damage (up to $200k) and Inverse Liability (coverage in parts of Canada/US where local laws don’t allow a claim against the person who caused a crash) are also covered under the Basic Autoplan

Product – United StatesAll US states require motor vehicle owners to demonstrate they have sufficient coverage or funds available to meet that specific states’ Motor Vehicle Financial Responsibility regulations.

State schemes - privately or publically underwritten, or a combination. Minimum coverages are often expressed as follows:• 20,000/40,000/10,000 – bodily injury liability protection of $20,000 per person up to a

maximum of $40,000 per accident. The $10,000 refers to liable property damage • No Fault Coverage - Pays 1st party medical expenses, and wage loss no matter who is at

fault. Limits vary from $2,000 - $50,000 to unlimited (Not available in all states)

Most no-fault jurisdictions in US use two types of thresholds for access to non-economic (pain-and-suffering) damages at common law:• Qualitative (i.e. verbal) threshold - Categories of injuries considered sufficiently serious to

permit a tort (e.g., death, or permanent disability or disfigurement)

• Quantitative (i.e. monetary) threshold - Specific dollar (or other currency) amounts that must be spent on medical bills before a tort is allowed

Example benefits - Pennsylvania• Privately underwritten, “choice no-fault” model (uncommon). Drivers can

choose a full tort plan or a limited tort plan

• Full tort plan - Claimant can pursue non-economic damages as a result of an auto accident without an injury threshold

• Limited tort plan - Claimant can pursue non-economic damages only if the injury is defined as “serious” in nature

• Modified comparative fault – 51% threshold (exceptions apply)Key Benefits Description

Medical • Minimum limit of $5,000 with higher limits available

Common law

• Full common law – Higher premium and claimant can bring a claim for any injury

• Limited common law - Lower premium and cannot seek recovery for NEL unless the injuries fall within the definition of “serious injury”

Example benefits - Massachusetts• Privately underwritten, pure no-fault model.

• Modified comparative fault – 51% threshold (exceptions apply)

• Coverage:

– Third party bodily injury

– Third party property damage

– Personal injury protection (PIP)

– Uninsured/ Underinsured drivers protection

Key Benefits Description

Personal injury Protection (PIP) • Up to $8,000 per person regardless of fault

Common law

• Limits up to $20,000 for each person and $40,000 each accident for third party bodily injury.

• $5,000 each person for third party property damage

Product - UKMinimum unlimited liability of £1m property damage. Anyone injured or with losses caused by the drivers negligence can sue for damages.

Coverage:

• Common law awards only – no limits apply (but this is under review in respect to low value “whiplash” claims)

• Uninsured or untraced drivers – losses covered by the Motor Insurers’ Bureau, funded by a levy on motor insurance premiums

• On-road or public place only – currently insurance is not compulsory for off-road vehicles but this is under review (to align to an EU First Directive)

Benefits – UK• Privately underwritten - all benefits negotiated at common law

• Recent major reform activities:

– Jackson Reforms established an online fast-track process for small claims

– Whiplash reforms proposed for 2018 – capped damages according to a

fixed scheduleKey Benefits Description

Non-economic loss • Pain, suffering and loss of amenity – according to a fixed schedule

Economic loss • Unlimited loss of earnings, legal fees, case management, additional cost of holidays, court of protection costs (third parties)

Medical/Treatment/

Care

• Unlimited cost of care and rehabilitation, aids and equipment, extra domestic/DIY help, housing alterations, medical/physio costs, transport, etc.

• Statutory emergency fees as required under the Road Traffic Act

Other benefits • Reasonable funeral costs

Premiums and Affordability

• Unaffordable premiums are typically one of the major

drivers of scheme reform internationally.

• Uninsured drivers represent a tiny proportion of drivers in

Australia but this is not the case in all jurisdictions – in

some US states over 20% of owners are uninsured.

Historically some Canadians provinces also had high

proportions of uninsured (prior to reform)

• Australian/NZ CTP premiums are relatively affordable (as

% AWE) compared to other jurisdictions.

Affordability

Publically underwritten scheme

Privately underwritten scheme

Private & Publically underwritten scheme

What is an “affordable”

premium?

Road Safety• Accident rates per 100,000 people

Road SafetyLegend

REGION2005- 2014AVERAGE

2005- 2014RANK

2014 2014 RANK

REGION2005- 2014AVERAGE

2005- 2014RANK

2014 2014RANK

BRITISH COLUMBIA

7.9 11 6.3 10 NORTHWEST 9.1 8 9.1 19

NEWFOUNDLAND 5.9 5 5.5 8 NUNAVUT 9.0 4 11.1 21

PRINCE EDWARD ISLAND

7.9 16 3.4 1 CALIFORNIA 9.9 14 8 15

NOVA SCOTIA 8.7 12 5.8 9 MICHIGAN 11.4 17 8.8 16

NEW BRUNSWICK 11.0 19 7.7 14 MARYLAND 9.8 15 7.4 13

QUEBEC 5.0 6 4.1 3 MINNESOTA 8.6 13 6.6 12

ONTARIO 3.1 1 3.5 2 OREGON 11.7 18 9 17

MANITOBA 7.43 10 5.3 7 WASHINGTON 7.8 9 6.5 11

SASKATCHEWAN 16.4 21 11.6 22NEW SOUTH

WALES4.4 3 4.1 3

ALBERTA 12.4 20 9 17 VICTORIA 4.4 2 4.2 5

YUKON 14.6 22 10.8 20 QUEENSLAND 5.8 7 4.7 6

• Fatality rates per 100,000 people:

Road Safety• Speed is a critical factor in accident/fatality rates. Cameras are effective in Australia, UK and Japan

• The charts below compare the number of intersection cameras in Victoria & BC, Canada

Cameras across Victoria - 280 fixed and 1750 mobile Cameras across BC - 140 fixed across the state

Road SafetyLegend

Affordability

Road safety Initiative Best practice Effectiveness

Speed

▪ Automated speed

enforcement

(intersection cameras)UK

(2000–2004)

✓ 42% reduction in deaths or seriously injured at

camera sites

✓ 100 lives saved per year

✓ 4,230 fewer personal injury collisions

▪ Automated speed

enforcement at high

risk sitesVictoria,

Australia

✓ 26% reduction in casualty crashes, minor injury

crashes and fatal collisions

✓ 39 fewer minor injuries per year

✓ 17 lives saved per year

▪ Point to point systems

UK

✓ 36% reduction in fatal and serious collisions

✓ 16% reduction in personal injury collisions

Distracted

▪ Road infrastructure

countermeasures e.g.

rumble stripsUS

✓ 50% reduction in single vehicle run off road injury

crashes

✓ 91% reduction in crashes on urban two-lane roads

Impaired▪ Increase in

enforcement

New Zealand

(2010–2011)

✓ 40% decrease in road deaths (52 lives saved)

Reform in Canada• Over the past 20 years almost every Canadian jurisdiction implemented product reform in response to escalating

minor injury costs. Reforms included caps/deductibles on minor injuries or pure no-fault

• British Columbia is the only major jurisdiction which still has a fully common law scheme, and is seeing major

increases in the number and size of minor injury claims – driven by Pain & Suffering awards

Claim frequencyGrowth in number of claims can be an early indicator of poor claims experience. Typically minor claims are a big driver. Caps/deductibles on minor claims can have a significant effect on claim frequency, as seen in Canadian provinces where minor injury caps were implemented. A similar minor injury definition is being introduced in NSW from 1 December 2017

StatisticsNSW (Pre-Reform)

Victoria QueenslandNew

ZealandBritish

ColumbiaOntario Nova Scotia Michigan Pennsylvania UK

Population (millions)

7.7 6.0 4.9 4.7 4.7 13.8 0.9 9.9 12.8 65.1

Number of registered vehicles (millions)

6.1 4.7 4.9 3.9 3.2 7.1 0.6 8.3 10.6 27.3

Casualty rate per 1,000 vehicles

3.8 3.8 3.9 3.6 6.6 6.8 6.9 9.1 7.9 4.9

Bodily Injury claim rate per 1,000 vehicles

2.9 3.6 1.8 8.0 13.9 1.7 4.2 6.0 4.4 13.3

Average bodily injury claim size

AUD $135,000

AUD $62,736

AUD $112,370

NZD $60,000

CAD $45,169

CAD $153,830

CAD $49,200

USD $52,960 BIUSD $52,260 PIP

USD $11,920GBP

£10,800

Claims experience• Claims experience varies widely by jurisdiction globally

• Average claim size for CTP claims in Australia are relatively high

(LTCS claims included in Queensland and Victoria average claim size)

Fraud & exaggeration• Fraudulent behaviour and exaggerated claims are

growing issues including claims farming (internationally)

• Significant measures have been taken by NSW, where a police taskforce was set up to investigate CTP fraud. Other countries are looking to the Strike Force Ravens as one example of how to tackle the problem of fraud within insurance schemes

• Court award processes are another major source of rising claims costs, driven by exaggeration and building up of claims

Case study: NSWNSW: Sydney medical centre raided

in fraud ring

Australian Associated Press - General News

SYDNEY, Oct 25 AAP - A Sydney medical

centre has been raided by police as part of

investigations into an alleged car insurance

fraud syndicate targeting the compulsory

third party insurance scheme.

Detectives from Strike Force Ravens seized

documents from the Bonnyrigg medical

centre as they swooped on Tuesday

morning, following a 14-month multi-agency

investigation into professionals from the law,

health and insurance sectors, police say.

To date, strike force investigators have

arrested 16 people and laid more than 120

charges in relation to a combined fraud of

more than $11 million, with further arrests

expected.

AAP HH/JCA/AB

Australian Associated Press Pty Ltd

REFUGEE WRECKERS IN $400M

CTP SCAM

GRAND THEFT RORTO Daily Telegraph Andrew Clennell EXCLUSIVE 7 April 2017 664 words English DAITEL 9 Copyright 2017 News Ltd. All Rights Reserved ORGANISED crime syndicates led by Iraqi refugees on temporary protection visas as well as Afghani and Vietnamese crimes are behind a wave of car insurance fraud which is driving up all NSW motorists’ green slip prices. Strike Force Ravens, a police taskforce investigating the compulsory third party insurance scams, yesterday moved on the Lansvale’s Floyd Bay boat ramp on the Georges River to drag out dumped stolen cars believed to be part of the massive fraud scheme. At least one vehicle was identified after being dragged out by towing crews and police divers last night. The fraud involves the use of minor or even fake crashes being reported, either to insurance companies or the Police Assistance Line. Conditions such as post-traumatic stress disorder in one or two-year-old infants are often fraudulently declared as part of the reports. To avoid costs associated with court battles, insurance companies pay out the claims, worth tens of thousands. Police “strongly suspect” the scams cover hundreds of CTP insurance claims and involve doctors and solicitors. On Wednesday, detectives raided two premises in a bid to gather evidence and lay charges over the racket.

During the execution of search warrants at offices in Auburn and Bankstown, police seized a variety of documents and electronic storage devices for forensic examination. The commander of the Fraud and Cybercrime Squad, Detective Superintendent Arthur Katsogiannis (left), said that the scams were intricate and well-organised. “From our investigations thus far, we strongly suspect that medical practitioners and solicitors have been complicit in these fraudulent CTP schemes,” Mr Katsogiannis said. “We’re appealing to the community for information that may assist us ... and I also want to send out a strong warning to anyone making or assisting fraudulent CTP (claims) to expect a visit from our detectives from Strike Force Ravens very soon. “It’s important that we put a stop to this culture of entitlement. “It impacts financially not only on the state of NSW but on each and every one of us who registers our motor vehicle and has our green slip. “We have looked at hundreds of claims and we have probed the accuracy of these claims and we can say the estimate of around $400 million per annum it costs the CTP scheme is fairly accurate. “It’s (also) a timely reminder to legal and medical practitioners ... (to) ensure they conduct due diligence when dealing with claimants.” The Daily Telegraph ¬understands that the scam’s ringleaders include Iraqi asylum seekers, who often hire community members to make the claims for large windfalls. Afghani and Vietnamese communities are also believed to be involved, with South Western Sydney bearing much larger footprint for green slip claims as a result of the fraud.

“Investigations under Strike Force Ravens are continuing and further police operations are expected,” a police statement said. Finance Minister Victor Dominello set up the green slip fraud taskforce which led to the establishment of the police strike force in August last year. Mr Dominello said the NSW government’s new reforms, which will stop claimants being able to go to court over minor injuries, would help crack down on the fraud. The government has ¬already promised savings of $120-$200 a year off the back of the reforms. Mr Dominello has previously said fraudulent claims are costing everyone in NSW $75 a year in insurance costs. “This is not a fraud against insurance companies; this is a fraud against every motorist in NSW,” Mr Dominello said. “The NSW government’s green slip reforms will smash the business model of these fraudsters and leave them nowhere to hide. “Obviously I hope the perpetrators brought to justice.”Police Minister Troy Grant said: “What we see in this ¬operation is a stark example in the actual cost of crime to the community and the government is learning how to work across government to address the crime problem.” News Ltd.

NSW: Sydney medical centre raided

in fraud ring

Australian Associated Press - General News

SYDNEY, Oct 25 AAP - A Sydney medical

centre has been raided by police as part of

investigations into an alleged car insurance

fraud syndicate targeting the compulsory

third party insurance scheme.

Detectives from Strike Force Ravens seized

documents from the Bonnyrigg medical

centre as they swooped on Tuesday

morning, following a 14-month multi-agency

investigation into professionals from the law,

health and insurance sectors, police say.

To date, strike force investigators have

arrested 16 people and laid more than 120

charges in relation to a combined fraud of

more than $11 million, with further arrests

expected.

AAP HH/JCA/AB

Australian Associated Press Pty Ltd

REFUGEE WRECKERS IN $400M

CTP SCAM

GRAND THEFT RORTO Daily Telegraph Andrew Clennell EXCLUSIVE 7 April 2017 664 words English DAITEL 9 Copyright 2017 News Ltd. All Rights Reserved ORGANISED crime syndicates led by Iraqi refugees on temporary protection visas as well as Afghani and Vietnamese crimes are behind a wave of car insurance fraud which is driving up all NSW motorists’ green slip prices. Strike Force Ravens, a police taskforce investigating the compulsory third party insurance scams, yesterday moved on the Lansvale’s Floyd Bay boat ramp on the Georges River to drag out dumped stolen cars believed to be part of the massive fraud scheme. At least one vehicle was identified after being dragged out by towing crews and police divers last night. The fraud involves the use of minor or even fake crashes being reported, either to insurance companies or the Police Assistance Line. Conditions such as post-traumatic stress disorder in one or two-year-old infants are often fraudulently declared as part of the reports. To avoid costs associated with court battles, insurance companies pay out the claims, worth tens of thousands. Police “strongly suspect” the scams cover hundreds of CTP insurance claims and involve doctors and solicitors. On Wednesday, detectives raided two premises in a bid to gather evidence and lay charges over the racket.

During the execution of search warrants at offices in Auburn and Bankstown, police seized a variety of documents and electronic storage devices for forensic examination. The commander of the Fraud and Cybercrime Squad, Detective Superintendent Arthur Katsogiannis (left), said that the scams were intricate and well-organised. “From our investigations thus far, we strongly suspect that medical practitioners and solicitors have been complicit in these fraudulent CTP schemes,” Mr Katsogiannis said. “We’re appealing to the community for information that may assist us ... and I also want to send out a strong warning to anyone making or assisting fraudulent CTP (claims) to expect a visit from our detectives from Strike Force Ravens very soon. “It’s important that we put a stop to this culture of entitlement. “It impacts financially not only on the state of NSW but on each and every one of us who registers our motor vehicle and has our green slip. “We have looked at hundreds of claims and we have probed the accuracy of these claims and we can say the estimate of around $400 million per annum it costs the CTP scheme is fairly accurate. “It’s (also) a timely reminder to legal and medical practitioners ... (to) ensure they conduct due diligence when dealing with claimants.” The Daily Telegraph ¬understands that the scam’s ringleaders include Iraqi asylum seekers, who often hire community members to make the claims for large windfalls. Afghani and Vietnamese communities are also believed to be involved, with South Western Sydney bearing much larger footprint for green slip claims as a result of the fraud.

“Investigations under Strike Force Ravens are continuing and further police operations are expected,” a police statement said. Finance Minister Victor Dominello set up the green slip fraud taskforce which led to the establishment of the police strike force in August last year. Mr Dominello said the NSW government’s new reforms, which will stop claimants being able to go to court over minor injuries, would help crack down on the fraud. The government has ¬already promised savings of $120-$200 a year off the back of the reforms. Mr Dominello has previously said fraudulent claims are costing everyone in NSW $75 a year in insurance costs. “This is not a fraud against insurance companies; this is a fraud against every motorist in NSW,” Mr Dominello said. “The NSW government’s green slip reforms will smash the business model of these fraudsters and leave them nowhere to hide. “Obviously I hope the perpetrators brought to justice.”Police Minister Troy Grant said: “What we see in this ¬operation is a stark example in the actual cost of crime to the community and the government is learning how to work across government to address the crime problem.” News Ltd.

Case study: BC, Canada

In conclusion…Big differences exist in CTP schemes around the world but there are surprisingly many similarities too.

Key observations:• Wide variety in product types/benefits available

• Minor injuries – common theme driving costs upward

• Affordability spectrum

• “Choice” models

• Use of thresholds (verbal/dollar)

• Importance of road safety

Resources

Questions?

http://www.icbc.com/about-icbc/company-info/Documents/Affordable-and-Effective-AutoInsurance-Report.pdf

http://assets.ibc.ca/Documents/Brochures/All-about-Auto-Insurance.pdf