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Where has that CTP competition gone?

By johnboy - 13 July 2010 17

Despite increasingly confusing literature with our rego renewal paperwork there isn’t actually any competition in the compulsory third party market yet.

The increasingly active Alistair Coe (Liberal for those of you who haven’t had the pleasure) is asking questions about what the hold up is:

“Given third party insurance is mandatory for every registered vehicle in the ACT, it is important Canberrans have the freedom of choice.

“I’m concerned excessive red tape is making it difficult for insurers to register as suppliers of the product. Canberra drivers are already paying more than ever to pay back ACT Labor’s deficits. The least Jon Stanhope can do is offer a competitive choice for compulsory third party insurance”.

He does have a point.

What’s Your opinion?


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17 Responses to
Where has that CTP competition gone?
Deano 1:12 am 14 Jul 10

The Axe Man said :

So you’d effectively have an option for NRMA, AAMI, GIO etc and they’d have their prices, you tick one and pay the whole amount to Rego

Maybe the reason is the ACT market is too efficient. See, in a totally efficient market 100% of the business goes to the lowest cost/highest value supplier and other suppliers must match that offer if they want to see anything, especially when there is no option to differentiate your product as with CTP.

pete74au said :

having seen what is happening in NSW and the trauma drivers and riders have to go through every year to negotiate a deal

Inefficient markets allow a range of suppliers to operate because it costs consumers to become fully informed about every suppliers’ offering. Mostly they take the first acceptable offering they find.

In the ACT market, consumers are provided with the complete information of all suppliers for no cost. Given that CTP it is a uniform product across all suppliers, 99.9% of consumers will select the lowest cost supplier. As a potential supplier to the ACT market I would be looking at this and thinking:

a) If I am the lowest cost supplier I will get 99.9% of the business
b) My competitors will be thinking the same thing and will try to undercut my price
c) To remain in business I will need to undercut their price
d) This will continue until everyone is charging the absolute minimum price
e) There is no profit in charging the absolute minimum price
f) I don’t think I could be bothered

There is a theory in economics that just the threat of competition is enough to make a market behave competitively and the easier it is for competitors to enter, the stronger the effect. It is in NRMA’s interests to keep premiums as low as possible to deter competitors from entering the market because minimal profit is better than no profit at all. So it could be argued, and the evidence seems to confirm, that the current arrangement is actually delivering close to the optimum outcome, just without the illusion of choice.

Tetranitrate 5:29 pm 13 Jul 10

pete74au said :

having seen what is happening in NSW and the trauma drivers and riders have to go through every year to negotiate a deal (note the govt takes 40%) I like our system better.

Sorry the price differential doesn’t justify change and the added angst. All we’ll become is a sub-set of NSW and have to make up their shortfall in insurance costs.

I wouldn’t have an issue with it if it was a publicly run insurance scheme, either at cost or with profits accruing to the treasury… but it isn’t.
It’s a private sector monopolist which has, for years upon years, been handed a license to charge as they please on a platter.

No there isn’t much of a market at this time, but the whole thing has only just been opened. Unfortunately part of the issue may be that it isn’t worth another insurer entering a market where the NRMA already has 100% market share.

p1 4:01 pm 13 Jul 10

The Axe Man said :

From memory you don’t need to chase around a price for CTP. I think all the prices are quoted (or would be quoted) on the rego renewal slip

So you’d effectively have an option for NRMA, AAMI, GIO etc and they’d have their prices, you tick one and pay the whole amount to Rego

That is how it is supposed to work, but at the moment you only have to option of selecting NRMA. I was responding to the specific post of someone asking why we can’t do it like NSW.

pete74au 3:33 pm 13 Jul 10

having seen what is happening in NSW and the trauma drivers and riders have to go through every year to negotiate a deal (note the govt takes 40%) I like our system better.

Sorry the price differential doesn’t justify change and the added angst. All we’ll become is a sub-set of NSW and have to make up their shortfall in insurance costs.

The Axe Man 3:07 pm 13 Jul 10

p1 said :

Personally, I think the convenience of just paying your rego and having it be valid, without having to go elsewhere and obtain a interestingly coloured (won’t somebody think of the colour blind!) piece of paper. Next you’ll be suggesting that we get vehicle inspections like in NSW.

From memory you don’t need to chase around a price for CTP. I think all the prices are quoted (or would be quoted) on the rego renewal slip

So you’d effectively have an option for NRMA, AAMI, GIO etc and they’d have their prices, you tick one and pay the whole amount to Rego

Disclaimer – I may be totally wrong

georgesgenitals 2:51 pm 13 Jul 10

I think the problem might be that the ACT legislation allows for unlimted liability claims against CTP insurance, whereas other states don’t, and for this reason don’t offer insurance in ACT because it would cost above the rates charged by the incumbent provider.

I heard this second hand, so be gentle…

Woody Mann-Caruso 2:15 pm 13 Jul 10

what exactly are our CTP problems?

Apparently, a lack of competition. As a result, we seem to pay less for CTP than drivers in NSW. These savings upset some people who are sure they’re being ripped off somehow. If Coe gets his way, maybe we can force some new players in the market so we end up like NSW, where a couple of hours of running around will save you $5 between the top and bottom of a dozen quotes and we pay higher prices overall.

p1 12:38 pm 13 Jul 10

captainwhorebags said :

Why can’t N.S.W. green slips be accepted here? Why are our CTP requirements so different to those just across the border, especially considering that a N.S.W. driver can drive in the A.C.T. with N.S.W. CTP (wow, acronyms) without any problems?

Personally, I think the convenience of just paying your rego and having it be valid, without having to go elsewhere and obtain a interestingly coloured (won’t somebody think of the colour blind!) piece of paper. Next you’ll be suggesting that we get vehicle inspections like in NSW.

housebound 12:21 pm 13 Jul 10

#5 – no doubt you’re right, but I would like to hear it directly from the companies. Perhaps Coe could write on behalf of his constituents to some (eg GIO) and ask what impediments there are to operating in the CTP market in the ACT. And then he could publish the answer.

On the other hand, the CTP sector wouldn’t be the first to avoid the ACT because of not wanting to deal with our bureacracy.

Deano 12:15 pm 13 Jul 10

Woody Mann-Caruso said :

Pundits: “The Market will fix all our CTP problems!”
The Market: “Meh.”

Apart from lacking the illusion of choice (after all it is compulsory) what exactly are our CTP problems?

liability 12:10 pm 13 Jul 10

I suspect the main problem is the overly generous nature of our Courts. It is no secret that ACT Courts generally award significantly more than other states for personal injury claims.

Given the relatively small profit margin in CTP insurance, the added cost of doing business in the ACT [higher Court awarded payments] is probably putting off other insurers.

captainwhorebags 12:05 pm 13 Jul 10

Why can’t N.S.W. green slips be accepted here? Why are our CTP requirements so different to those just across the border, especially considering that a N.S.W. driver can drive in the A.C.T. with N.S.W. CTP (wow, acronyms) without any problems?

Woody Mann-Caruso 12:00 pm 13 Jul 10

Pundits: “The Market will fix all our CTP problems!”
The Market: “Meh.”

Coe says Stanhope needs to “find out what obstacles are stopping other providers from entering this market”. Maybe the market has already done its own due diligence, as the market tends to do very well, and decided there’s no value to be had? If there was money on the table and the only thing in the way was red tape, you can be sure the wolves would be howling. Instead, we have deafening silence from all the other CTP players, crickets, and Coe banging two rocks together.

Perhaps Coe can explain how ‘actively working with the insurance industry to increase competition’ is compatible with a deregulated market. “If they won’t compete, the government should actively work with them to make them compete!”

verbalkint 11:39 am 13 Jul 10

Honestly, it isn’t a very good point.

Stanhope isn’t preventing choice, it is just that no one wants to compete. If there was money to be made, businesses would have been knocking down the door and complaining loudly abut the things that prevent them from getting into the market. I haven’t heard anything from the insurance industry.

We’re a small market and I paid less for CTP insurance here than I did when I lived in NSW.

The fact that no one has entered the market leads me to assume that NRMA keep relatively low margins here in order to keep competition out. Better that than to get greedy, inflate their margins and invite competition and lose market share.

Lazy I 11:38 am 13 Jul 10

Couldn’t agree more that some competition is needed. The last thing I want is the local government insisting I prop up the baby boomers nest egg (a.k.a NRMA).

The NRMA are like APIA in disguise when it comes to insurance.

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