FIJACIÓN DE OBJETIVOS PRIMARIOS Y SECUNDARIOS

a) i) Scheme Underwriter Costs (in percentage terms)

QLD NSW SA WA TAS

(Average) (1999/00) (Average) (1999/00) (Average)

Regulator Levy 0.68% 1.0% * * *

Transport Levy 1.7% 0.0% * 2.0% *

Insurer Acquisition

and Policy Costs 9.8% 10.9% 1.3% * 2.1%

Reinsurance 3.0% 1.6% 0.8% 0.6% 1.7%

Profit (Insurer) 7.2% 10.0% N/A N/A N/A

General Administration N/A N/A 16% 6.1% 4.3%

* Given the structure of these schemes, the costs are all included in general administration.

• The statistics for Queensland are the average of the figures set out in (2)(a) of Part A above.

• The NSW figures were calculated from information provided by the MAA detailing a split of the Premium for the 1999/00 policy year for Class 1 vehicles. This is taken to be consistent with prior periods.

• Information for SA and TAS was obtained by applying the proportions of “other costs” detailed in the Government Oversight Commission review of the MAIB (Tasmania) detailed on page 55 of that report. These costs relate to 1994/95 and 1995/96 and the proportions have been taken to be representative in the average premiums for the past five years.

• Information for WA was obtained from the ICWA and relates to an average for all vehicles expected to be in the Scheme for 1999/00.

Comparisons between the schemes are difficult given the different approaches to formulating premiums and analysing CTP costs.

Acquisition and policy costs in NSW are high possibly as a result of a “file and write” or “greenslip” process. On this basis the acquisition and policy costs for Queensland look comparatively high although the statistic is misleading in that the NSW premiums are significantly higher than Queensland.

The profit margin included in the premium is intended to provide the insurer with an appropriate rate of return on the capital provided to support the insurance risk. The scheme actuary has noted that it is generally accepted that the rate of return should be between 4% and 6% greater than the risk-free rate. Furthermore the actuary notes that at a level of capital of 23% to 37% of Premium income and a margin of 5% above the risk-free rate the profit margin should equate to 8.5% of the gross premium. The average assumed profitability (as assumed in setting the premium) for the five years for the Queensland Scheme was 7.2%.

Given the long tail nature of this business and the possibility that claim frequency and size will be significantly different from that assumed for any one premium year, wide fluctuations are likely in the ultimate profit margin.

Ernst & Young performed an analysis of the NSW CTP Scheme in 1998. As part of the analysis they estimated the effective rates of return on capital that private insurers derived from the Scheme on an accident year basis since inception. The analysis was performed by determining the Scheme cash inflows and outflows by accident year together with estimated future Scheme cashflows. The “best guess” of the return on capital invested by insurers in the Scheme by accident year was as follows:

Average rate of return:

1990 - 1998 - 17.5%

Average rate of return since deregulation of the premium setting process:

1993 - 1998 - 3.6%

Whilst this statistic tends to indicate that competition has dramatically reduced margins, a major influence on the rate of return achieved has been the increased claims cost experience.

The average rate of return for the 1993-1998 period has been significantly reduced as a result of negative returns on capital in certain of those years.

It should be noted that this rate of return should be compared with the desired rate of return referred to by the Queensland scheme actuary which is 4-6% above the risk free rate.

a) ii) Scheme Underwriter Costs (Average cost per policy)

QLD NSW SA WA TAS

(Average) (1999/00) (Average) (1999/00) (Average) $ per policy $ per policy $ per policy $ per policy $ per policy

Regulator Levy 1.43 4.00 * * *

Transport Levy 3.57 N/A * 4.34 *

Insurer Acquisition

and Policy Costs 20.57 47.00 2.74 * 4.05

Reinsurance 6.30 7.00 1.68 1.23 3.28

Profit (Insurer) 15.11 43.00 N/A N/A *

General Administration N/A N/A 33.67 13.45 8.29

* given the structure of the Schemes the costs are all included in general administration.

TABLE 18

• The costs for Queensland are the average for the five year period based on the proportions set out in (2)(a) of Section 5 above.

• The NSW figures were obtained from information provided by the MAA detailing a split of the Premium for the 1999/00 policy year for Class 1 vehicles. This is taken to be consistent with prior periods.

• Information for SA and TAS was calculated by applying the proportions of “other costs” detailed in the Government Oversight Commission review of the MAIB (Tasmania) detailed on page 55 of that report. These costs relate to 1994/95 and

1995/96 and the proportions have been taken to be representative in the average premiums for the past five years.

• Information for WA was obtained from the ICWA and relates to an average for all vehicles expected to be in the Scheme for 1999/00.

b) i) Claims Delivery Costs (in percentage terms)

QLD NSW WA SA

(Average) 1999/00 1999/00 1999/00

Legal Costs 11.0% 12.8% 8.7% 9.4%

Claims Handling 4.1% 4.0% * 3.2%

* Included in general administration costs as detailed in 3 (i) (a) above.

TABLE 19

• The statistics for Queensland are the average of the figures set out in (2)(b) of Section 5 above.

• The NSW proportions were obtained from information provided by the MAA detailing a split of the Premium for the 1999/00 policy year. This is taken to be consistent with prior periods.

• Proportions for WA were obtained from the information provided by the ICWA but insufficient information was available in respect of the claims handling component.

• Information for SA was obtained from the projected make-up of the risk premium for 1999/00.

As observed earlier in this review legal costs for the Queensland and NSW schemes are higher than the monopoly schemes.

b) ii) Claims Delivery Costs (in dollars per policy)

QLD NSW WA SA

(Average) 1999/00 1999/00 1999/00

Legal Costs 22.98 55.00 19.40 24.20

Claims Handling 8.61 17.00 * 8.30

* given the general structure of the scheme the costs are all included in general administration.

TABLE 20

• The costs for Queensland are the average for the five year period based on the statistics set out in (2)(b) of section 5 above.

• The NSW figures were obtained from information provided by the MAA detailing a split of the Premium for the 1999/00 policy year. This is taken to be consistent with prior periods.

• Costs for WA were obtained from the information provided by the ICWA but insufficient information was available in respect of the claims handling component.

• Information for SA was obtained from the projected make-up of the risk premium for 1999/00.