The option of self insurance is an alternative that may essentially be limited to corporations that own and manage fleets. This option would require that the fleet owner must be able to prove that they have access to enough funding in order to meet current and potential
liabilities that may arise from transport accidents in vehicles owned by the fleet. These obligations include long tail care obligations, the costs of which may be significant to the self-insurer.
The Review Team is not aware of any instances in which this occurs in a market where a single service provider exists. However, the Commonwealth Government self–insures its vehicles. The Review Team notes that self-insurance often arises in workers’ compensation insurance systems.
Benefits
Self insurance provides financial incentives to the self-insurer to effectively monitor the activities of fleet cars, and provide safe driving incentives. The financial risk is borne by the company or the fleet manager rather than the public system, providing potential benefits for the community through reduced administration costs of public sector services. There may also be financial incentives for individuals to drive in a safer manner, as they may have to contribute to the pool of funds held by the self-insurer.
Costs
The removal of the universal component of the present scheme may disadvantage affected parties who are not a part of the scheme. There is also the risk that despite financial checks, the self-insurer may not be able to adequately provide compensation or cater for the long term needs of affected parties. Negligent parties who have caused any degree of injury may also be open to common law claims, potentially exposing either the individual or the self-insurer to large settlement claims. This may also put increased pressure onto social welfare systems and lead to self-insurers inability to pay claims through reduced funds availability, should they decide to include common law protection as a part of their scheme.
In a self insurance system, there would be a need to allocate ‘no-fault’ losses where there is no requirement for allocation now. An allocation system would need to be developed which may incorporate a notion of fault, even though no-fault benefits are being allocated. This would
inevitably lead to disputes which do not arise under the current scheme. Some of these may lead to litigation.
There is the potential for an increase in the level of claims disputed through common law avenues if self-insurers either refuse to pay compensation or do not pay an adequate amount, introducing an element of fault to the no-fault scheme. Parties ineligible for self- insurance schemes would still need to be insured by some insurance system, making it necessary for the compulsory element to remain. It is also possible that only high risk individuals will not take out self- insurance due to the complete knowledge that they have regarding their risk. Investing in self-insurance would not be worthwhile to such parties, who would rely on the alternate system for ineligible parties. This would mean that the premium is likely to increase for the remaining pool. Increased monitoring of self-insurers to ensure compliance with legislative obligations would be necessary, potentially increasing costs to the community.
Despite the fact that only larger corporations may be permitted to self- insure, some parties may remain inadequately compensated. This could arise either due to the large financial risk (as the corporation might not have adequate assets to cover costs if the accident is serious), or that the corporation may not be managing the claim appropriately. The claims frequency for traffic accidents in Victoria is very low, approximately 5.4 no-fault claims per 1,000 registered
vehicles as at 30 June 200021, and it would therefore be difficult for a
corporation to be experienced in dealing with claims. This might lead to inconsistencies in claims management and compensation.
Alternative 2 Compulsory insurance for statutory benefits
only
This alternative model requires that the compulsory charge paid would only be applicable to funding the statutory benefits portion of the scheme. This would leave vehicles owners, or indeed any particular class of person, to choose whether or not to purchase an insurance product covering common law liabilities.
The Review Team is not aware of any systems that currently use this method of regulation.
The Review Team also notes that this option would entail a
fundamental change to the nature of the Victorian transport accident ________________________
compensation scheme as it would abolish one side of the scheme. It is not within the scope of this review to recommend such an action. Such a recommendation would require analysis of the relative merits of the whole transport accident compensation scheme, not just restrictions on competition.
Benefits
Common law expenses constituted 40% of total costs for traffic
accident claims in Victoria during 1998/9922. It is therefore possible
that a separation of the statutory benefits and common law claims could reduce premiums below current levels. The provision of a compulsory scheme for such benefits may also allow the universal component of the scheme to still exist, ensuring that the objectives of the Act are still met.
Exposure to common law remedies may also encourage safer driving as the liability is passed onto the individual, who is aware of their financial resources to support common law claims that may be
brought against them. Consumer choice may also be enhanced by this system, as they may be able to reduce their premiums through opting out of the common law coverage, rather than being compelled to pay for the two components of the charge.
Costs
In a system that offers choice to consumers, there may be a risk that vehicle owners would consider themselves to be “safe drivers” and therefore not take out cover for common law. This may result in affected parties not receiving adequate compensation for the effects of incidents if the negligent party does not have sufficient funds, and may in turn increase pressure on the litigation system. Should this often occur, there may be increased pressure put onto social welfare systems in order to support not only minor injuries and aggrievences, but of greater concern, the long tail care cases. Costs to the
community could increase through this additional pressure as social welfare systems will require additional funding.
In addition, such a system may result in a duplication of a number of activities, potentially increasing the overall cost of the scheme. For example, if both the insurer of the statutory benefit scheme and an insurer of the common law liability both had an interest in the one claim (and their interests would necessarily conflict to some extent) they may separately arrange investigation and assessment of the claim, including multiple medical examinations of the injured party.
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