My aim in this series of articles is to give you a practical understanding of the motor accident compensation scheme as it is now, with particular reference to what is necessary in considering and making a claim, on behalf of an incapable person under management. As this is necessarily an overview, I won’t descend into the detail of case law. Any comments I make necessarily are in my private capacity and not as a Claims Assessor of the Dispute Resolution Service of the State Insurance Regulatory Authority.
Compulsory third party (CTP) insurance in NSW has been re-shaped many times since it was first introduced in 1942. The legislation that currently applies is the Motor Accidents Compensation Act 1999 (MAC Act) and the Motor Accidents Injuries Act 2017 (MAIA).
Early history: Why Have a CTP Scheme
In considering the scheme as it is now, it might be helpful to briefly describe the history and development of the scheme since its inception almost 80 years ago.
The Motor Vehicles (Third Party Insurance) Act 1942 introduced the first CTP personal injury insurance scheme to NSW.
Before this Act, all personal injury entitlements in NSW were determined by common law:
• An injured person had to establish the legal negligence of the ‘at fault’ driver to receive compensation;
• The injured person then recovered their personal injury costs directly from the at-fault driver. This often-had devastating financial consequences for an at-fault driver without insurance; and
• If the at-fault driver did not have adequate financial resources, the injured person would not receive compensation.
The Changing World
After World War II, cars became more affordable and public road use increased rapidly. The increase in the number and severity of motor vehicle accidents and personal injuries in the first decade of compulsory cover resulted in a 370% growth in policies.
By the early 1950s, the media had focused on the disparity between compensation for personal injuries resulting from a motor vehicle accident and those arising in the workplace. Similar criticisms are made today. Convergence can be expected with the announced intention to establish a Compensation Tribunal which will combine the functions of the State Insurance Regulatory Authority and the Workers Compensation Commission (WCC). That process is underway and is being overseen by the president of the WCC.
Early Attempts to Contain Costs
In the mid-1960s, the scheme was reformed by removing juries and having all matters heard by a judge.
In the 1970s, compulsory personal injury insurance was back on the political agenda due to high inflation, which significantly increased the cost of policies (indexed at the time). The Government Insurance Office (GIO) was the sole underwriter.
In 1984, the first legislative attempt to directly limit claims costs, including limits on damages, was made under the Motor Vehicles (Third Party Insurance) Amendment Act 1984. However, the legislative changes did not control the rising cost of policies, which not only reflected increases in the amount of awards for damages, but also the increasing incidence of fraud. It was not uncommon to have multiple claims arising from a 2-car collision. They were bountiful days for personal injury lawyers. I don’t mean to imply that some lawyers aided and abetted fraudsters. There simply was a lot of work available.
TransCover was a fault-based scheme introduced in 1987 under the Transport Accidents Compensation Act 1987, administered by the GIO. It was a radical departure from the previous common law scheme as it set statutory benefits for pain and suffering, and medical expenses, as well as capping weekly economic loss benefits.
TransCover was introduced in tandem with Workcover in the worker’s compensation space by the Unsworth Labor Government. To say that the changes were opposed by personal injury lawyers, particularly the Labor lawyers, is an under-statement. The Law Society and Bar Association successfully lobbied the newly-elected Greiner Coalition Government which scrapped Transcover (to much lawyerly rejoicing) and introduced the Green Slip scheme.
The Green Slip Scheme
The introduction of the Motor Accidents Act 1988 restored the right to bring common law actions for damages, while introducing some restrictions, like indexed caps on general damages and exclusion of general damages for small claims. The Act provided for the payment of treatment and rehabilitation expenses as they were incurred by the injured person. There are no outstanding claims under the 1988 Act.
The insurance policies were called Green Slips.
The Act also re-opened the market to private insurers. Fixed premium rates resulted in a very profitable start for insurers, with an average rate of return of nearly 90% in 1991. Green Slips policies were deregulated at the end of 1991 and prices quickly plummeted – reaching a low of $199 for good risks in 1993- as insurers competed for market share.
However, as prices dropped, the cost of claims was rising. By 1994 insurers were losing money and Green Slip prices began to rise. By 1995 Green Slips were nearly double the lows of the early 1990s.
The 1988 Act was amended by the Motor Accidents Amendment Act 1995 in an effort to slow the rise in the costs of Green Slips. The Act reduced access to non-economic loss (pain and suffering) benefits for minor claims. It also limited access to non-economic loss to those whose ability to lead a normal life had been, or was likely to be, significantly impaired for a continuous period of not less than 12 months. These changes were reflected in similar restrictions introduced by the Civil Liability Act 2002 in relation to awards of damages in civil claims generally.
While the cost of claims fell by 16% in 1996, the success of the 1995 amendments was short-lived. The cost of pre-1995 claims (the long tail of the scheme) continued to grow.
Read more about Motor Accident Compensation in NSW in Part 2 of the series, “The Modern Scheme”, available here.