Gareth Morgan on ACC

July 10th, 2012 at 3:00 pm by David Farrar

writes at NZ Herald:

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.

The history of the world teaches us that incentives matter.

My own experience with the wonderful world of 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.

Ouch, that is a huge difference. It is right then that motorcyclists should pay higher premiums, rather than motorists subsidise their accidents.

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.

Agreed.

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.

This makes sense to me. Not sure about the practicalities, but ideally all of the vehicle insurance funding should be based on the driver, not on the number of vehicles.

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 licence 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 licence there is a strong incentive for riders who aren’t intending to ride not to renew that class of their licence. 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.

All good ideas worth considering.

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.

Hear hear.

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27 Responses to “Gareth Morgan on ACC”

  1. trout (939 comments) says:

    What a terrible idea – accountability. ACC has convinced people that accidents just happen; they are nobody’s fault. Except for employers; they are held accountable through penalty levies. In the land of ‘induced demand’ the existence of ACC in fact has increased the number of accidents. How? By taking away the individual’s need to acknowledge the consequences of their actions before they make decisions. Morgan is right; his idea would move ACC away from ‘socialized insurance’ to ‘personal insurance and accountability’ which is what it should be.

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  2. KiwiGreg (3,255 comments) says:

    LOL all these “good ideas” are just choices you can make with your own insurance (self insurance, risk mitigation [eg alarms], excess absorption, no claims bonuses). It’s only the government mandated monopoly crap that has all these perverse incentives.

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  3. John Nevard (12 comments) says:

    Doesn’t go far enough- this should be implemented for cars as well. If not as a replacement for the present system, as a alternative choice of registration.

    Bugger the idiots who bleat ‘but what about the teenagers who only drive their parents car every couple of weeks [likely with about the same risk of injury to themselves and others as would be incurred if I drove everywhere at 40kph over the speed limit]‘. How hard in this overly connected world would it be for occasional drivers to prepay for accident comp for a certain number of driving days and use the Web or a 0800 number to designate when they will be consuming them? Not very hard at all- in fact, so easy that it should be a doozy to extend to bicyclists, the least responsible of all road users.

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  4. david (2,557 comments) says:

    But but but ….. ACC is NOT AN INSURANCE SCHEME, haven’t you been paying attention to Andrew Little et al over the last 3 months or so?

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  5. leftyliberal (651 comments) says:

    Gareth suggests that many riders ride less km/annum than drivers. Should the ACC levy have some proportionality for frequent riders vs infrequent riders (this may currently be absorbed as one presumes an owner of many motorcycles may use them more frequently than the owner of one?) or are the accidents of infrequent riders just as high as those of frequent riders, making this a moot point?

    Also, on the excess idea, what does the data suggest is an appropriate amount? Are there many sub $200 ACC payouts resulting from motorcycle use, or should the excess be higher (you don’t want it too high, else there’s no point insuring to begin with).

    I’m surprised that after there were data used initially to conclude that motorcycle rider contributions to ACC should be higher than those of car drivers, that there was a lack of data used for the rest of the thoughts.

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  6. Richard29 (377 comments) says:

    Some very good options and they mostly seem to make sense, although I think vehicle model is known to have a correlation to claim rates (speedsters like an engine with some guts) not just owner so that may still want to be factored in somehow.
    I suspect the main reason they have not been implemented already is not so much ideology as the fact that it would make administration of the scheme a lot more complicated. One of the great benefits of our ACC model (like GST) is that it is simple to administer and is not riddled with exemptions and special cases.
    Historically the annual ACC levy cost component of vehicle registration has been fairly low so there has not been much pressure from the public to make these kinds of changes that would require ACC to ask every single road user half a dozen questions and keeping track of their personalised insurance plan – all for the sake of saving a couple of dollars a week.
    As the costs of ACC grow over time those dollars will add to hundreds a year (as apparently they already do for motorcyclists) and the size of savings (and the corresponding incentive effect) will increase making these changes worth while.

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  7. Richard29 (377 comments) says:

    In other news:
    AA advocate increasing the share of ACC levies on petrol and adding ACC levies to diesel – with corresponding reductions in ACC levies in registration.
    http://www.aa.co.nz/motoring/aa-torque/speaking-up/fuel-taxes-fines-charges/acc/
    That makes sense to me – user pays – the people on the road the most pay the highest levies. If I took a 1 week holiday and paid the same premiums as somebody who took a three week holiday I’d feel pretty ripped off..

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  8. RRM (9,924 comments) says:

    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.

    Ouch, that is a huge difference. It is right then that motorcyclists should pay higher premiums, rather than motorists subsidise their accidents.

    With the greatest of respect, what bullshit!

    How is raping all motorcyclists because some motorcyclists crash, ANY fairer than raping all car truck and motorbike owners because some motorcyclists crash?

    I think Morgan’s suggestions about a no-claims discount and an excess are good…

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  9. bhudson (4,740 comments) says:

    Gareth’s ideas to treat ACC more along the lines of general and income protection insurance have some merit – there are strong incentives there to improve competency and to ride safely.

    BUT

    – according to his stats, at least 69% of motorcycle injuries involve another vehicle. If motorcyclists are being injured by other motorists, the cost of their ACC claims should be borne by those other motorists, not an ACC levy hike on motorcyclists. The levy hike was poorly targeted and effectively penalises motorcyclists for the driving errors/inattention of other motorists.

    It’s like fining the victims of crimes for the acts of the offenders.

    – on the point of an ACC levy per person and not per bike, if the base levy rose (I.e. charge per person was higher than the current charge for a single bike) then those who cannot afford a second, or more, bikes, would effectively be subsidising the ACC cover for people like Gareth, who can

    I agree there is some merit to his solution, but I disagree with his analysis of the problem – motorcyclists are gouged on ACC charges now and (to a significant exent) the charges are being levied on the wrong group.

    [Of course that means, as a car driver, my ACC levy would rise, but not as much as it did for each individual motorcyclist, and it is where the charges most appropriately lie.]

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  10. tom hunter (4,852 comments) says:

    How is raping all motorcyclists because some motorcyclists crash, ANY fairer than ….

    Oh, I could not agree more, but I recall that you are a left-winger – albeit a moderate one – and hence have a faith in collectivism: from each according to his ability, to each according to his need, and so forth.

    Public education, public health, public businesses, the whole grand history of NZ – that all will carry the burden for some – which peaked in the 1960’s and birthed ACC. Don’t you think that your outrage strikes at the heart of that belief?

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  11. RRM (9,924 comments) says:

    Tom Hunter – Public health and public education is all carrying a burden for just about all – I have no problem with that. The village should educate its young people and take care of its sick.

    The way the motorbike ACC levies have gone, you have a few carrying the burden for some other few.

    So no, I’m not going to say it’s as unfair as all taxation… but I *am* going to say it’s as unfair as graduated taxation. ;-)

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  12. swan (665 comments) says:

    If you are going to slice and dice the motoring fraternity by vehicle type, why stop there? Why not age, gender, ethnicity, post code, marital status etc?

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  13. slijmbal (1,236 comments) says:

    @swan

    it’s the shear size of the difference in likelihood of claims that reinforces the point.

    Also …. We already do some risk based ACC levies – forestry workers receive different charges than office workers.

    The real argument is to what extent it is an insurance scheme vs a welfare instrument

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  14. Michael (909 comments) says:

    Here’s an idea that will make Gareth Morgan’s head explode – scrap ACC altogether and let people choose what provider to use. Then Morgan can create a scheme like he describes and sell it through the Post Office.

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  15. tom hunter (4,852 comments) says:

    It’s like fining the victims of crimes for the acts of the offenders.

    It could be argued from that perspective.

    But it could also be argued that bikers are being injured by other motorists simply because they chose a form of transport that they must know is inherently less safe (no airbags, no crush zones, etc). If you’re going to insist on a public scheme you have to acknowledge that there will be legal limits on choice.

    Or think of it this way: from a public health or safety perspective it’s the same as arguing that laying higher costs on people who smoke, drink, and eat as much as they want is like punishing them for their choices. Apparently it’s regarded as much fairer having a public system that is forced to simply remove such choices in the first place – at least as far as is practicable – in order not to impose the resulting costs on everybody.

    That would be unfair.

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  16. PaulL (5,981 comments) says:

    THe main problem with ACC is that levies are applied to classes of people, irrespective of the risks within that class. All bulldozer drivers pay the same levy – both the driver who gets injured every 6 months because he ignores all the safety gear, and the driver who has never been hurt. Same for motorcycle riders.

    The underlying problem is monopoly.

    If there were competitive providers there would be an incentive to identify and target lower risk groups, and offer them a specialised premium. There are all sorts of technological innovations that permit that. In some countries I believe you can get a lower premium by having your car’s speed voluntarily limited. All motor vehicle insurance is graduated based on the vehicle (fast cars, preferred by fast drivers, cost more to insure). ACC does none of this, because it’s seen as social welfare rather than insurance.

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  17. bhudson (4,740 comments) says:

    tom,

    To take that logic to its conclusion is to say that pedestrians should not only pay ACC levies, but pay a large amount, because their choice of walking presents a greater likelihood of any unplanned interaction with a vehicle resulting in serious injury.

    Which is to say, your logic suggests that pedestrians should pay for the privilege of motorists running them down.

    It also suggests that SUV drivers should pay less as they are less likely to be seriously injured in an accident with another vehicle (large truck notwithstanding.)

    Motorcyclists are far less likely to have an accident resulting in a major ACC claim if another vehicle is not involved (31% vs 69%). Motorcyclists should to be taxed because of other motorists’ incompetence or inattention.

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  18. mikenmild (11,247 comments) says:

    But a pure risk-based approach could well penalise cyclists, motorcyclists and pedestrians for choosing the form of locomotion that is inherently more hazardous. ACC is a hybrid scheme and will never be perfect.

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  19. rolla_fxgt (311 comments) says:

    Something those of us who have multiple cars have been arguing for years. Rego/licencing should be based on use, not some random number.
    I’m not sure of anyone who can drive multiple vehicles at once, and everyone drives different distances in a year, rego, and the ACC cosst should be distance based with a lowish fixed cost to begin with. Then they’d reflect the actual cost of use of the road, and the actual cost of covering accidents.

    Sadly no one at NZTA, or ACC wants to know.

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  20. thedavincimode (6,759 comments) says:

    I couldn’t be bothered reading this quote. I just wondered whose idea Morgan had pinched this time.

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  21. tom hunter (4,852 comments) says:

    I wasn’t aware that pedestrians chose to occupy the same transport spaces as vehicles in the way that motorcyclists do.

    Anyhoo, my “logic” – the reductio ad absurdum part of which I was well aware of – was simply an attempt to make people think this through. The fact is that ACC as it exists now is a long way from the original intent, which was to provide accident compensation for all supported by all, with very little differentiation among classes. All that actuarial analysis was for greedy private sector actors.

    Of course reality began to intrude, so that ACC looks more like any private sector insurer with every passing day. Things like the “preferred employer” scheme, the ever more detailed efforts to slice and dice the premium/risk classes, not to mention lawsuits around ‘fault’, ‘liability’, ‘culpability’ making their way back into the scene, when one of the central arguments of the original ACC was to avoid such litigation.

    All of which should cause people to ask themselves whether we would have been better off in the first place with such a government-owned group as just one provider amidst many and the retaining of such incentives in the hands of private individuals, rather than the monopoly it has been for decades (with one brief interlude in the late 90’s). It’s not like our workplace accident and death rates are anything to boast about compared other countries that lack ACC-type schemes.

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  22. mikenmild (11,247 comments) says:

    Maybe we shouldn’t forget the origins of ACC and the ‘no fault’ basis for accident compensation, as a mechanism to secure what could not be offered by private insurers. Are we at a point where the objects of the scheme could be better secured by private insurance?

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  23. freemark (580 comments) says:

    My 200cc Vespa PX costs $477 to licence for a year. It has done 8000km in 11 years, go figure.
    The ACC levy should ideally be based on KM travelled, however I realise this is administratively impractical and open to odometer fraud.
    Why doesn’t the levy get lumped into the petrol price? More K’s equals more risk and more petrol, may have a small effect in reducing fuel consumption and would hit the high risk hoons in the pocket.
    Or you turn up for licencing and your ACC component is based on age, vehicle type, accident & infringement history, etc.. central database, actuaries doing the sums.

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  24. toad (3,674 comments) says:

    Seriously, does anyone ride or drive more safely for fear of their ACC levies going up?

    Did the mining industry paying the highest levies of any employer incentivise Pike River to prevent the appalling health and safety breaches that led to the tragic explosion of the mine?

    Only in the weird world of the free marketeers. In the real world, ACC levies are not even in the mind of a motorcyclist or driver when they head out on the road. Nor are they in the mind of most employers when they make (or fail to make) decisions about health and safety in the workplace.

    The way to get injury rates down is through a combination of education, regulation and enforcement, not through having levies set on the basis of injury risk.

    I would get rid of the levy system altogether and fund ACC through general taxation, just we fund health, education and just about every other public service. That was Sir Owen Woodhouse’s original blueprint for ACC. But from day one of implementation back in 1974 it has become progressively corrupted to function more like an insurance scheme, which it was never meant to be.

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  25. Paulus (2,627 comments) says:

    We do not have enough Lawyers in New Zealand to handle claims should ACC be scrapped. But that would change rapidly as Lawyer would immigrate to New Zealand in droves. Its a goldmine.
    The only winners will be the Lawyers – see USA & Australia – all fault – follow the money.

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  26. labrator (1,850 comments) says:

    Nor are they in the mind of most employers when they make (or fail to make) decisions about health and safety in the workplace.

    You ever run a business toad? One with employees that is.

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  27. trout (939 comments) says:

    ACC handles over 1 million claims a year; in a country of 4.5 million people! Even blind Ned would see that this is unsustainable. If ACC were scrapped the number of claims would collapse to a realistic level. So Lawyers would benefit but it would be a helluva lot cheaper than the present system. And of course the law can regulate compensation claims.
    The socialization of injury compensation is just another run away welfare scheme that is exploited by professionals and claimants alike. The reluctance of the Left to acknowledge it is an INSURANCE SCHEME, not a welfare scheme just shows how far off track things have gone.

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