Insurers split on Rejigging Green Slip System

Private insurers insure almost 4.7 million vehicles in Queensland, from tractors to motorcycles. Motorists choose their insurer, and the plan’s gross premiums and levies reached $1.7 billion last year.

The regulator sets maximum and minimum prices, but review guidelines indicate that all four insurers — QBE, Allianz, Suncorp, and RACQ — have submitted the maximum allowable amount for cars each quarter since April 2017. Each insurer charged $366 for coverage that month.

“This seems to indicate that the advantage of competition is not visible in a system underwritten by private insurers,” the regulator noted.

Low profitability presents a challenge

The regulator argues that an 8 percent margin is fair for insurers and that industry average margins over eight years are 20 percent. But that number has shrunk to 4 percent in the latest 2021 results.

The regulator’s review found that insurers’ profits vary and could be due to factors such as “differences in business plans, customer acquisition strategies and operational performance.”

“The low profitability of some insurers poses a challenge to the stability and sustainability of the CTP system. When profits are negatively disproportionate to the risks an insurer bears, it may choose to exit,” it said.

“Conversely, enabling higher insurer profits by raising the maximum premium would be at the expense of motorists and increase the existing pressure on the cost of living.”

RACQ, which has a 26.1 percent market share, said it lost $25 million to CTP in the past fiscal year, but declined to comment on historical margins. The group said it acquires a disproportionate share of older cars whose drivers are more likely to have accidents compared to the safety improvements offered in newer vehicles.

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“Premium Equalization”

“Some insurers make higher profits while taking less risk. The scheme is designed to require insurers to accept all drivers, regardless of their vehicle type or driving experience, and all drivers pay the same price,” a spokeswoman told The Australian Financial Review.

She backed “premium equalization” which the regulator has found could be similar to NSW’s green slip scheme, whereby premiums are reallocated between “insurers from insurers with better performing portfolios to insurers with poorer quality risks”.

This system could reduce the risk of an “insurer attracting too many high-risk customers”, but a downside was that better-performing insurers would have “less incentive to innovate”, the regulator’s paper said.

But Allianz, with a 23.7 percent market share and known for winning a large share of new car sales from dealers, has criticized as “regressive” any changes that divert returns from insurers “that deliver better rehabilitation outcomes for injured road users, to underperforming insurers”.

This would harm the program’s commercial sustainability, an Allianz spokesman said.

Allianz declined to disclose its profit margins. She claimed the regulator’s 8 percent margin target was insufficient, and that Queensland’s CTP program “did not meet Allianz’s targeted return on investment.”

The alliance has been berated by competitors for accumulating a disproportionate amount of new cars for CTP, with insurers banned from offering dealer commissions. Suncorp even wrote privately to the regulator at one point to express suspicions about the issue, the Financial Review revealed in 2019.

Allianz remains committed to complying with system requirements and has not received any warnings or fines from the state regulator.

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Suncorp, with a 42.6 percent market share, and QBE, with 7.6 percent, said they are reviewing proposals. Both declined to disclose their profit margins.