In its response to a 2023 review, the Royal Automobile Club of Queensland (RACQ) has called for what it called the “unbalanced risk that RACQ members are forced to carry” in the compulsory third-party scheme to be addressed.
The insurer's submission to the review, led by the Motor Accident Insurance Commission (MAIC), claimed that premium equalisation is the fairest solution for all parties involved in the scheme.
Under the CTP scheme's current model, insurers cannot choose what risks to underwrite and cannot refuse a motorist who selects them for their CTP. Moreover, all drivers with the same vehicle class pay the same CTP premium, regardless of their individual risk.
RACQ's submission emphasised the significance of addressing a key issue for the insurer – the “unbalanced risk that RACQ members are forced to carry in the scheme” even though only 470,000 of its 1.2 million CTP policyholders are members.
“Premium equalisation is a fair solution and is the best way forward for the scheme with minimal disruption to those involved,” Carter said. “This model would allow for premiums to be re-distributed across insurers based on the risk profile of their portfolio.
“This means for every dollar of CTP risk an insurer holds in the scheme, they would receive the appropriate level of premium, and if an insurer holds less risk, they receive less premium – a fair outcome for everyone.”
Carter said: “It would not impact motorists or the annual premium they pay, nor would it impact any other associated professionals who work in the scheme, including legal and health practitioners. Importantly, it would not impede the care or benefits available to injured persons, and community-rated pricing would also be retained to ensure affordability for motorists.”
RACQ's market research found that its reputation has attracted a significant number of riskier vehicles and drivers than other insurance companies, which means its portfolio has a significant proportion of older vehicles, young or inexperienced drivers, shorter policy terms, and re-registered vehicles compared to other insurers. However, it cannot charge more for this risk, and “we can't turn these motorists away.”
The imbalance resulted in RACQ's portfolio experiencing higher claims frequencies (ranging from 6% to 20% greater than the industry average), according to its independent actuarial analysis.
Moreover, RACQ's brand strength in Queensland has led to significant market growth, further exacerbating its elevated risk and claim frequency, leading to greater claims costs, despite the insurer's s claim management performance being on par with the industry.
“Put simply, the larger the market share for RACQ, the greater the unfairnesses as we do not receive the appropriate premium to cover our level of risk,” Carter said. “A premium equalisation model would not change how motorists choose their CTP insurer, nor would we want it to.
“It would create a level playing field across all insurers by matching the level of premium to the level of risk.”
The insurer is committed to working with the MAIC and the Queensland government to ensure the scheme's stability, Carter said.
