RACQ has urged the Queensland Government to consider introducing “premium equalisation” to the state’s compulsory third party (CTP) motor insurance scheme.

The motoring club and insurer says the proposed measure will “restore fairness” and address challenges to the scheme, which is currently undergoing a review announced in March by Treasurer and Minister for Trade and Investment Cameron Dick.

RACQ has already previously welcomed the review led by the Motor Accident Insurance Commission (MAIC) – which oversees the scheme – and also recommended premium equalisation to the government.

The MAIC discussion paper flags three scenarios for consideration. Scenario two suggests keeping the existing privately underwritten model with scheme design changes that would include the introduction of a premium equalisation mechanism. 

The paper says a premium equalisation mechanism may encourage the ongoing participation of existing insurers and attract new insurers to enter the CTP scheme.

In its submission RACQ says premium equalisation is the “fairest solution” for all parties involved in the scheme.

“For the most part, Queensland has a good CTP scheme that runs well,” RACQ CEO David Carter said. 

“But we need to address a key issue that’s eroding fairness and stability and that is the unbalanced risk that RACQ members are forced to carry in the scheme even though only 470,000 of our 1.2 million CTP policy holders are members.” 

RACQ has an insurance arm and is one of four licensed insurer participants in the scheme. The other three are Suncorp, Allianz and QBE.

“Premium equalisation is a fair solution and is the best way forward for the scheme with minimal disruption to those involved,” Mr Carter said. 

“This model would allow for premiums to be re-distributed across insurers based on the risk profile of their portfolio. 

“This means for every dollar of CTP risk an insurer holds in the scheme, they would receive the appropriate level of premium, and if an insurer holds less risk, they receive less premium – a fair outcome for everyone.” 

Under the scheme’s current setup an insurer cannot choose what risks to underwrite and cannot refuse a motorist who selects them for their CTP, according to RACQ. 

This means all drivers with the same vehicle class pay the same CTP premium, regardless of their individual risk.

And RACQ's portfolio has a greater proportion of older vehicles, young or inexperienced drivers, shorter policy terms and re-registered vehicles compared to other insurers. 

“Yet we can’t charge more for this risk, and we can’t turn these motorists away,” RACQ says.

“This imbalance has resulted in the Club’s portfolio experiencing higher claims frequencies (which is the number of claims received per policy, ranging from 6% to 20% greater than the industry average, according to independent actuarial analysis).”