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Privatising personal injury

  • Adroit Insurance and Risk
  • May 18, 2015

As governments seek new ways to lower costs for business, insurers are seeing a “window of opportunity”. Insurers believe Australia’s personal injury schemes could be more efficient and cheaper. This is because most of them are owned and operated by government-owned agencies and businesses could benefit if they were opened up to a competitive market.

Suncorp is leading the charge, arguing that while regulation of compulsory third party and workers’ compensation schemes is understandable, there’s really no need for governments to be in the insurance underwriting business. State-owned monopolies might be justified if the private sector was unable to provide the service, but this is not the case, as private enterprise currently provides insurance in 8 of Australia’s 19 personal injury schemes. State-owned enterprises, on the other hand, underwrite the remaining 11.

Not since 1989 have we seen a scheme move from public to private.  This is despite the private sector having the capacity and the desire to run successful schemes. Insurers see the current situation as a patchwork of inconsistency – a process of natural reform that was never completed.

According to a PricewaterhouseCoopers (PWC) report, privatising state-based personal injury schemes could increase productivity and generate billions of dollars in economic output. Privatised schemes can bring faster recovery times for injured people, reduce the burden on the health system and lower premiums. Competing insurers would minimise price, and provide the best product and customer service possible. The report also estimates that in a competitive private scheme, 5% of injured people would return to work faster.

A significant issue in the current system is that there is a conflict in that governments have to act both as insurer and regulator. In a privatised system, Governments would be able to focus on independent regulation, enforcing the rules and ensuring that licensed insurers conduct their operations in the public interest.

However, Suncorp argues that governments might be best placed to continue to handle the small number of injuries that are catastrophic. Such claims are expensive and lengthy and the injured person should be provided appropriate care and support for as long as they live, potentially decades.

Insurers already have the skills, systems and processes required to expand their operations and there has never been a better opportunity to complete the stalled process of reform and eradicate the inconsistencies of the current setup. The ability to operate nationally and in multiple jurisdictions would allow insurers to generate economies of scale.

This is a once in a lifetime window of opportunity, and insurers want to climb through it before it shuts.

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