Recently ACC architect Sir Owen Woodhouse commented that in moving to full funding in 1999 and ditching pay-as-you-go, the government made a grave mistake with ACC.
He cites the 30 per cent loading to annual levies to fund the tail of claims, not expected to be cleared until 2019, as unnecessary.
Of course Sir Owen has always seen ACC as part of the social welfare vote not as an insurance scheme.
This entitlement benefit, he argues, was the gain individual New Zealanders scored by giving up their right to sue. The collective gain for us all was national savings from eradicating the costs of legal disputes.
For sure, some of the controversy swirling around ACC relates to the stress of building, by 2019, a balance sheet that matches its assets with liabilities arising from the lifetime costs of accidents.
This is why levies are rising when the actuaries change their estimates of how big the fund has to be to cover the increasing costs of medical care and rehabilitation – in particular for serious claims.
But the arguments over funding of ACC aside – whether we return to pay-as-you-go and just let the implied liability do what it likes, much the same as it is for NZ Super or for future health and education costs – there are other things we could do to make the ACC model more efficient.
The actual charging regime, as opposed to the funding model, has much scope for improvement.
Now again Sir Owen doesn’t like the fact that we have different levies to reflect different accident rates in different industries or with different kinds of vehicles.
His assumption is that people naturally take all care necessary and don’t need financial incentives – higher levies – to self-manage their risk. Sadly that is a sweeping assumption that has been shown to be wrong.
My own experience with the wonderful world of ACC over the last 18 months has involved trying to understand what has been driving the bills for on-road motorcyclist injuries through the roof.
That work has revealed that we could do this a lot better. Already the annual relicensing bill for larger motorcycles is more than for cars, and that’s despite the fact that the average bike traverses way fewer kilometres a year than the average car.
In fact research we’ve done at the Motorcycle Safety Advisory Council indicates that the risk of serious and expensive injury on a motorcycle is around 45 times higher per person-kilometre travelled as it is for occupants of other vehicles.
And we have a lot more bumps, scrapes and bruises per person-kilometre as well.
It gets worse. We also found that up to 31 per cent of our injuries arise from incidents involving no other vehicles. In other words we do this to ourselves because we can’t handle the road conditions.
Now of course we can blame the road as some of us are wont to do, but the reality is in most cases it’s pure incompetence or lack of self-management.
Any charging regime that gives riders an incentive to ride within their level of competence, to self-manage risk by wearing better protective clothing for example, or even lifting competency levels has to be a win-win doesn’t it?
Sir Owen might say no, that all care and no responsibility is the right ACC model and motorcyclists’ natural preference for self-preservation is sufficient.
But he’d be wrong and the rocketing bill is the evidence.
At present we are charged for our ACC cost on a per-bike basis. Even though you can only ride one motorcycle at a time, the more bikes you have the more you pay.
It’s some sort of wealth tax I guess but it bears no relation to the risk of injury.
Of course we do the same with cars but given that the cost to ACC of motorcycling injuries is way more per rider than it is for other vehicle types, this disjoint between risk and negative reward (the premium) is material.
The conclusion I reached, once I got to grips with what was happening in the motorcycling injury scene and what is driving ACC’s bills in this area, is that it’s pretty obvious that the levy should be charged per rider – say through an annual rider licence renewal fee.
In this wonderful world of mobile internet, building such an app should be about a month’s work. The real point however is to give riders an incentive to self-manage and reduce the number of self-inflicted injuries and the accompanying bills.
The standard approach in the private insurance market is you reward good behavior and discourage bad. So why are we not designing the compulsory ACC levy to do just that?
Here’s a first pass at what I’d do:
- Introduce a no-claims bonus – the annual rider licence fee should be discounted for the number of successive years you have maintained your motorcycle licence but had no ACC claims.
- An excess – there needs to be a limited discount on the annual rider licence fee available to the extent you are prepared to self-insure. All riders should be liable to pay say the first $200 of any ACC claim – this at least gets rid of expensive but trivial claims. Then as well as that, a discount should be available, say up to 10 per cent on your license fee, if the rider is prepared to foot the bill for a further $500 of injury claims.
- A break in maintaining your annual rider licence renewal should trigger a user-pays relicensing process. Obviously by imposing the ACC levy via an annual renewal of your riding license there is a strong incentive for riders who aren’t intending to ride not to renew that class of their license. That’s a good thing because it enables the gate to be controlled for returning riders to ensure their competency levels are adequate. Injuries to returning riders have been a source of much angst and expense. The extent of the relicensing required should depend on how long a break from riding has been taken.
- A limit to the income replacement component to ACC’s entitlement claims can be opted for by the rider when they relicense each year. It is a fact that riders with high salaries who get injured cost us a hell of a lot more in the levies we pay. Why don’t we put a limit on income replacement, or impose an additional levy if you want income replacement above a certain level? That would reduce significantly this component of the entitlement claims made on ACC that the rest of us are compelled to fund.
Under this regime those who got their motorcycle licence years ago and haven’t ridden for yonks, or at least relicensed every year, face hurdles getting back on the bike. We know returning riders are a greater injury risk and we need them to be adequately competent for the bike they get on when they return.
By switching from ACC levies being imposed on the bike to imposing them on the rider we can control the gate on who is competent to ride a motorcycle. A five-year break, say, would require a full testing process again. Shorter breaks might demand a rider training course.
Yes this is a further assault on Sir Owen’s incorporation of accident insurance within the social welfare regime.
But then unbridled social welfare without limits, where accountability is a dirty word, is a very poor piece of social engineering anyway.
The key with ACC is to achieve the benefits of avoiding litigation, so retaining the benefits of universal entitlement but all the while providing incentives for self-management.
The funding dilemma for ACC can in large part be solved by reforming the charging regime. And I would be surprised if these principles, applied to other high-cost areas of ACC, didn’t tame the monster.