RACQ exits troubled CTP insurance business amid mounting losses

Motoring giant RACQ will pull out of the CTP insurance scheme covering 1.2 million drivers after racking up heavy losses on the troubled business. | Your questions answered after shock move

Motoring giant RACQ has confirmed it will exit the troubled compulsory third party insurance (CTP) scheme after racking up millions of dollars in losses on the business.

RACQ chief executive David Carter said while the club had built a strong reputation for claims management, it was no longer viable to continue participating in the scheme.

“The scheme’s design allows for all participating insurers to be profitable, however, this assumes an equitable distribution of risk,” said Mr Carter. “In recent years, RACQ’s risk profile has worsened through no fault of our own, resulting in significant losses for the club.”

The State Government says the exit of RACQ will not result in higher premiums for already financially struggling motorists. CTP premiums are set by the Motor Accident Insurance Commission (MAIC). RACQ said it would stop offering CTP insurance cover from October 1 and has formally requested its license be withdrawn pending approval from the MAIC.

All existing RACQ CTP policies will remain in place and over the following 12 months, Queensland motorists with RACQ CTP insurance will be transitioned to another insurer on renewal of their registration.

The motoring body says analysis showed that over the past five years, there was a significant difference between the most profitable and least profitable insurers in the scheme. RACQ has a larger proportion of older vehicles and less experienced drivers on its CTP books.

Rival insurer Suncorp said the exit served as further evidence of the challenges facing the insurance industry and it was committed to talking with the Queensland Government on the long term viability of the scheme.

RACQ to exit CTP scheme.

Mr Carter said that in 2022 for every $100 of premium received, RACQ paid $123 in claims and expenses due to the increased frequency and severity of claims that the club received relative to the scheme average. “We saw little change in 2023 and in the absence of any changes to the way premium is shared between insurers, the outlook shows no signs of material improvement,” said Mr Carter.

The club wanted changes to the CTP scheme that would involve insurers with less riskier customers sharing more premiums with insurers like RACQ that take on riskier prospects. 

The decision to exit the business comes amid RACQ’s deteriorating financial position that saw it post an after-tax loss of $236m last year after flooding events and news it would refund half a million of its members a total of up to $220m after they did not get promised discounts on their insurance premiums.

A spokesperson for Treasurer Cameron Dick said the participation of an individual insurer in the CTP scheme would “have no impact on premiums paid by Queensland drivers or the viability of the scheme itself.”

RACQ holds about 27 per cent of the Queensland CTP market against Suncorp, QBE and Allianz but its claim frequency is up to 20 per cent higher than the rest of the industry. Speculation is also mounting the body is also trying to sell their whole RACQ insurance division which is also absorbing losses from natural disasters and regulatory slip ups.

Mr Carter reinforced that the losses did not relate to claims management but to how the scheme was operating.

RACQ chief executive officer David Carter

“Premiums paid by Queensland motorists are fair and do not need to increase and should not increase now because RACQ has withdrawn from the scheme,” said Mr Carter.

Mr Carter said the club would have liked nothing more than to stay in the scheme and support the 1.2 million Queensland motorists who choose RACQ as their preferred provider.

However, he said that following several years of raising concerns with the State Government and regulator Motor Accident Insurance Commission, it was clear that even the most recent scheme review is unlikely to achieve a level playing field or restore fairness across the insurers.

“The unfortunate reality is despite the extensive steps we have taken over many years to improve our position, including support provided by our reinsurance partners, it is no longer viable for us to continue participating in the scheme,” Mr Carter said.

Mr Carter said the decision would not compromise or cause any disruption to CTP claimants with a claims process underway or who may have a claim in the future.

“RACQ will continue to provide a claims management service to ensure our existing CTP claimants continue to receive the same high standard of service we are known for, even after our exit from the scheme,” he said.

A RACQ spokesperson said the overall insurance business remains financially strong and “taking this difficult decision to exit the scheme enables us to further strengthen our financial position and focus on delivering our other high-quality products and services.”

The spokesperson said the club was in process of finalising its reinsurance placement, and was are confident this would occur by June 30.

Reinsurance is insurance for insurance companies and is a way of transferring some of the financial risk that insurance companies assume when insuring customers.