Page 27 - Week 01 - Tuesday, 12 February 2008
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barriers to entry for potential entrants to the ACT CTP insurance market and greater certainty in relation to capital risk.
However, lest Members believe that the ACT government is blindly following the other states and not pulling its weight, Treasury is in discussions with APRA with a view to testing the regulatory provisions in our legislation, other than premium setting, against APRA’s enhanced powers and regulatory processes following the insurance crisis. The purpose is to ascertain whether there is duplication or potential for future streamlining of those processes. That work will not require this legislation to be delayed. Rather, it will provide the ACT, New South Wales and Queensland with information that will allow regulators to review existing provisions and engage with insurers and other relevant stakeholders with a view to developing additional efficiencies. Efficiency offers premium benefits to consumers. Thus, the ACT pulls its weight as a regulator while applying consistent provisions already in the law.
New South Wales is also taking steps to adapt that state’s CTP claims procedures to align with Queensland and the ACT. The government anticipates that the three open market jurisdictions will ultimately become sufficiently coordinated in claims procedures and regulation that insurers will be presented with opportunities to price consistent risk profiles covering nearly 10 million vehicles in lieu of the present three separate markets. The ACT will reap substantial benefits from such alignments in terms of scheme efficiency, coordinated risk, claims and procedural consistency and premiums will ultimately follow a downward path in line with the two other, larger jurisdictions.
Premium regulation in part 2.6 of the bill is, as I indicated, identical to the premium setting mechanism in New South Wales. There are sound, practical reasons for taking this approach, not least on account of geography. The number of vehicles in the ACT represents around five per cent of the New South Wales market and the ACT represents a single generic premium region in addition to the existing five premium regions in New South Wales.
Finally, with regard to setting premiums, the Queensland scheme has specific requirements with respect to price controls arising from the vastness of the state and the sparseness of areas of its population. While the ACT has, since the scheme’s inception in 1935, offered a community premium, as does Queensland, as opposed to risk based premiums, the New South Wales premium calculation model provided more flexibility and was more suitable to this jurisdiction. Indeed, the enhanced information available under the new ACT scheme means that insurers will be able to offer discounts to safe drivers below the community premium, thereby enhancing opportunities for competition. The existing premium regulation mechanism is simply not productive in terms of fostering competition.
I have said before in this place that NRMA Insurance has not deliberately abused the accidental monopoly which it has held since 1980. In fact, in the early 1990s, NRMA Insurance voluntarily disclosed that for a number of years during the 1980s premiums had been higher than had proved to be necessary to meet the cost of all claims incurred during those years. To recompense motorists NRMA Insurance agreed to reduce premiums by $80 per vehicle for four years and contributed $10 million as initial funding to establish the NRMA—ACT Road Safety Trust.
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