Article: Government turns off Insurance claims tap

http://www.theaustralian.com.au/bus...p/news-story/66935eeca2549f9edf5e4df1feaf11a3

The insurance industry and the prudential regulator are on their toes watching to see where Australia’s lawyers will next turn up to feast on lump sum payouts, after the legal community up-ended the sector’s stability with blowout life insurance and compulsory motor claims.
The government and the $40 billion insurance sector are tightening up lawyers’ involvement in compulsory third-party vehicle insurance schemes and in life insurance and disability claims, which helped plunge the sector into deep unprofitability in recent years. But as reforms are pushed through the insurance system, limiting the excessive legal involvement in lump sum payouts, executives and regulators are now wondering where the lawyers’ picnic will feast next.
The sector-wide blowout came first in life insurance policies and then moved on to CTP schemes, and took insurers and the Australian Prudential Regulation Authority by surprise. It is not often that a single industry will be hit by such a large jump in costs, only for the problem to then transfer across to a different product in the same sector. The Campbell Newman government’s crackdown on workers compensation in Queensland left many lawyers without access to lump sum payouts, which saw lawyers target disability insurance in superannuation, which accelerated a blowout in life insurance claims across Australia.
Reforms are now being considered by the life insurance industry to limit the involvement of lawyers and to head off their engagement by processing claims faster.
The NSW, Queensland and South Australian governments have unveiled reforms for CTP insurance. NSW plans to cut the amount of fraudulent and exaggerated claims and put a six-month limit on benefits for less severe motor accident injuries, essentially cutting off support for “soft tissue and minor” injuries after that point.
Legal experts estimate up to a third of people injured in motor accidents will lose the right to benefits under the new scheme.
The explosion in claims caused hefty premium price increases as the industry attempted to recoup losses. Average premiums surged 215 per cent for death and total and permanent disability cover over the past four years, while income protection rates have risen a cumulative 82 per cent.
CTP policies in NSW have nearly doubled in a decade to more than $700 a year, with more than half the cost chewed up in scheme fees, which count legal fees and company profits.
Thanks to the Howard government’s 2005 choice of superannuation reforms, life insurers increased insurance benefits while keeping a lid on premium prices to win contracts with big super funds.
In many cases, premium rates were heading south when cover was doubling or trebling. Adding to the claims tinderbox was a super fund-driven awareness campaign about insurance benefits at the same time law firms hyped members’ ability to claim.
In October 2013, the Newman government workers compensation reforms introduced an “impairment threshold” injured workers had to pass before being eligible for a claim — instantly blocking about half of all personal injury claims in the state.
Ian Fryer, head of research for superannuation consultancy Chant West, said as payments moved to an income stream model, many personal injury lawyers turned to more lucrative claims through super funds.
“It’s hard to get a big commission out of an income stream and they looked around for big lump sum disability payments,” Mr Fryer told The Australian. “So it started out in Queensland and spread from there.”
At the time, Brisbane-based personal injury law firm Shine Lawyers said the reforms would shave up to $2.5 million off its profit, but the listed firm said it would attempt to offset this by increasing work in its “emerging practice” areas, which included “disability insurance and superannuation” claims. A year later, Shine’s emerging practices division booked revenue growth of 48 per cent.
Shine Lawyers general manager of super and disability claims, Will Barsby, told The Australian the 2013 amendments “made accessing benefits under their superannuation insurance a necessity” for injured workers.
“People are more aware of their rights to claim benefits under their superannuation and life policies due to recent media attention. Insurance companies have been unreasonably denying claims, causing consumer watchdogs to pay more attention to this growing problem,” Mr Barsby said.
An industry source familiar with Slater & Gordon’s operations in Queensland said legal activity in the TPD claims space had started to build in the years before the reforms. “I don’t fairly think that the Newman legislation caused the heightened claims. It was going to get to that situation no matter what,” they said.
Maurice Blackburn’s own claims data shows the peak on Queensland life insurance through superannuation was in August 2013, two months before the legislation passed. Claims have subsequently declined.
Brisbane solicitor Adam Tayler, a disability insurance and superannuation claims specialist for Turner Freeman, said the Newman reforms were “a contributing factor” to claims blowout. “Any time the government tightens up compensation schemes it forces (lawyers and claimants) to look elsewhere,” Mr Taylor said.
In CTP, insurers are pushing premiums ever higher in a bid to shed market share and return to profit. Following the announcement of the NSW government reforms, lawyers are now rushing to get claims settled before the scheme is overhauled.
Australian insurers Suncorp and QBE are expected to further lift premiums on CTP policies. QBE increased premiums by 18 per cent last year, and said it was planning more price rises.
Suncorp said despite NSW reforms, the scheme still included access to lump sums for motorists with minor injuries.
“The more the scheme relies on legal proceedings, the more uncertain claims costs will be. This makes the CTP scheme volatile, which has an impact on premiums,” Suncorp’s Christopher McHugh said.