The NSW Government has released a discussion paper aimed at reining in “excessive insurer profits” in its compulsory third party (CTP) scheme.

Minister for Innovation and Better Regulation Victor Dominello says margins are unacceptably high and result in motorists paying too much in premiums.

“Since the current NSW CTP scheme was introduced in 1999, insurance companies have made an average profit margin of about 20%,” he said.

“We are determined to put an end to the days of insurer super profits. Our reforms will provide the Government with greater powers to regulate these profits so more money goes to injured road users.

“The changes will also see a significant reduction in premiums for motorists.”

The discussion paper includes regulatory and administrative changes already proposed, plus additional legislative changes “to wind back insurer profits to a reasonable level”.

The Insurance Council of Australia (ICA) is reviewing the paper.

“ICA notes the issue of insurer profits in the CTP scheme was thoroughly analysed by Trevor Matthews and Deloitte in their report of the independent review of insurer profit within the NSW CTP scheme, released in March,” a spokesman said.

That report found “significant inherent uncertainty” in ultimate claims costs due to the long delay between claims being reported and finalised.

“Insurers typically allow for this uncertainty in the form of higher premiums,” it said.

“Due to the complexity of the product, it is difficult to predict the level of insurer profit at the time of filing.”

The March review recommended simplifying the premium system, encouraging insurers to compete for the majority of risks and addressing cross-subsidies “in a more effective and transparent way”.

Submissions to the discussion paper close on November 25.

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