Page 17 - Week 01 - Tuesday, 12 February 2008
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step towards reform of regulations governing CTP insurance. In an ideal world, however, I would like the government to go further. I would like to see an end to price controls on insurance contracts, for the coverage of particular events no longer to be mandatory and for the current prohibition on the creation of specialist insurers catering to exclusive sectors of the market to end. These changes are not possible in the ACT market as it stands but should, I believe, be the goal of the territory government.
This bill adopts a so-called “community rating” approach, which prevents insurers from providing CTP insurance only to exclusive sectors of the market. Clause 24 of the bill prohibits an insurer from declining to issue or renew a CTP insurance policy. This means that an insurer cannot choose to cater to only one section of the CTP insurance market. They must either insure everyone or insure no-one. At present, when there is only one provider operating, this makes an enormous amount of sense. The same insurer covers everyone because of a lack of competition. But under this clause, an insurer considering entering the insurance market to cater exclusively to, say, older drivers is prevented from doing so. The explanatory statement for the bill says:
In light of the Government’s desire for competition, these provisions prevent insurers from segmenting the market.
I would argue that—in time, if not straightaway—this sort of condition in an open and competitive market would have the opposite effect and deter entry to the market.
Ideally the ACT would have an open insurance market with a number of providers competing for services and targeting different sections of the market. This is clearly not the case yet, but I would hope that this legislation is the first step in ultimately reaching that point. The fact is that if insurers choose to enter or remain in the CTP market despite this restriction in the ACT, they must, as a matter of fact, recover losses on unprofitable lines of businesses by charging higher premiums to safer drivers. From a purely commercial point of view, this potentially makes the market less attractive.
The fact of the matter is that good drivers are subsidising bad drivers under the present system. I would hate to see a situation where an insurance company said, “Well, we will not touch anybody under the age of 30,” because a large number of our younger people would be denied the opportunity to drive lawfully in the territory. But I believe that if we can have a measure of competition and other products available to consumers, as occurs across the border, ultimately this is an outcome and a marketplace solution that is desirable and that ought to be one of the objectives of the territory government.
As in the New South Wales system, this bill continues with a regime of government price controls, which are the necessary result of the community rating approach. Clause 38 of the bill requires CTP insurers to have their premiums approved by government regulators. This is a necessary consequence of the community rating approach, as it forces insurers to insure high-risk drivers at a loss. Insurers in the CTP market must make up this loss somehow, and it is safe drivers who bear the burden of this enforced subsidy.
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