RACQ has warned persistent losses in its compulsory third party (CTP) business may force the motoring club and insurer to review its participation in the Queensland scheme.

The warning comes as participating insurers differ over the future direction of the scheme, according to submissions made to the Motor Accident Insurance Commission (MAIC).

RACQ says the underlying performance of its portfolio “deteriorated significantly to the point of loss making in 2020/21, buoyed only by reinsurance”.

In 2021/22 the portfolio made a $35.6 million loss after reinsurance and the outlook for this year is also unfavourable.

“These losses persist in FY2022/23 and RACQ’s ongoing participation in the scheme is at risk,” RACQ says in its submission. “RACQ’s important investments in community and road safety initiatives have already reduced due to CTP losses.”

RACQ says “premium equalisation” should be introduced so that “fairness” is restored but QBE and Suncorp – two of the four insurers in the Queensland CTP scheme – are against the measure.

MAIC – which oversees the scheme – is currently reviewing the CTP program and has flagged three scenarios for consideration in its discussion paper.

The first calls for keeping the status quo; the second suggests keeping the existing privately underwritten model with scheme design changes such as introducing a premium equalisation mechanism; and the third switch to a public underwriting model.

The discussion paper says the potential advantage of a premium equalisation mechanism is that it could reduce the risk of an insurer attracting too many high-risk customers, thereby not generating a sufficient premium pool to meet the expected cost of claim.

Similar to the NSW version, the paper says the proposed measure could involve the evaluation of risk within an insurer’s portfolio and an associated redistribution of collected premiums between insurers from those with better performing portfolios to insurers with poorer quality risks.

QBE and Suncorp in their submissions say the proposed premium equalisation measure will add “complexity” to the scheme.

QBE says the measure will “introduce an increased level of uncertainty with respect to the future profitability of the scheme” while Suncorp says the proposal “may be both difficult and costly to implement in the current scheme”.

But RACQ says the measure is fair as it is a “behind-the-scenes redistribution of premium that matches the actual risk in an insurer’s portfolio and would be targeted”.

“Whilst we believe premium equalisation is the best way forward for the scheme, we acknowledge other insurers may disagree,” the RACQ submission says. “Those that are currently enjoying greater profits despite carrying less risk than the scheme average will be vocal in their opposition, as it will require them to accept lower profitability than under the status quo.”

RACQ says its growing market share – now at a record high 27% – is exacerbating the elevated risk and claim frequency.

“Put simply, the larger the market share for RACQ, the larger the problem, as we do not receive more of the premium.”

But all three insurers agree the scheme must remain privately underwritten and are against the idea of a public model as flagged in the discussion paper.

Suncorp says its appetite for providing claims management services within a publicly underwritten CTP scheme would depend on the remuneration model offered.

Allianz, one of the four participating insurers, made a confidential submission to the review.

Non-participating insurers IAG and Youi also provided confidential submissions to MAIC.