Progressive Turmoil

Dear ACC

Its been a rough period on the investment side of your business hasn’t it? And those pre-1999 claim debts have to be paid sometime. So maybe levies need to rise across the board. But why are your proposed funding adjustment increases not uniform across levy classes? The average motorist levy increases by 63% while earners and employers respectively get 55% and 52% increases due to system-wide funding adjustments. This loads a disproportionate share of system-wide costs onto motorists. Why have you done it this way?

Secondly, within motor vehicle account, what kind of road-user mix are you trying to promote? The levies you propose for 2010/11:

• are based on a victim-pays mindset for levy-paying victims of road accidents;
• load a disproportionate share of the costs of non-levy-paying victims onto motorcycles; and
• over-charge light trucks and under-charge heavy trucks.

These levies affect the road use choices of New Zealanders. They convey a clear but unfortunate message: encase yourself in as much steel as possible.

When a car hits a motorcycle, it is the biker who tends to need more expensive care. But if the car wasn’t there, it wouldn’t have happened. There are two sides to this event, both equally necessary. So why don’t we charge the motorcycle and car accounts half each of all these costs? Why does the most mashed up victim have to pay the most, when it could never have happened without the other guy? Doesn’t this also weaken the incentive for car drivers to take efficient amounts of care regarding motorcycles?

Also, do you have any evidence to support your apparent view that motorcycles are similar to cars and trucks in their same propensity to inflict costly collision damage on cyclists and pedestrians? By simply counting registered (i.e. levy-paying) vehicles and allocating each vehicle the same share of (un-levied) cyclist & pedestrian costs you further ignore the principle that collision costs be attributable equally to the (levied) participants. Its bad enough that you mis-allocate motorcyclists own costs, adding an excessive share of the un-levied classes, who motorcyclists rarely harm badly, is particularly galling.

Provided you account for collisions properly, I really don’t mind if you differentiate levies between motorcycle types by adding extra classes of levies. But since you have proven able and willing to do this for/to motorcycles, why can’t you also do it for trucks? This quote is from the actuarial advice:

The exercise to calculate risk relativities revealed a large difference in risk rates between trucks and smaller commercial vehicles (vans and utility vehicles (utes)), with trucks showing a higher level of risk. This is driven by higher average claim costs. Under the current class structure, trucks, goods vans and utility vehicles (utes) are not distinguished from each other; these vehicles belong to either ACC Class 5 or 9, depending only on their motive power (petrol or non-petrol). If there is a difference in risk between trucks and vans/utes, these vehicles cannot be charged different rates under the current class structure, due to system constraints.

Why not, since you could do it for motorcycles? Basic physics suggests that these must be about the most damaging of all vehicle types to collide with, so this class should be a high priority. This omission distorts efficient choices of vehicle size, unduly tilting the market in favour of larger vehicles.

For completeness, and I’m sure you’re sick of answering this one, I must also the one that some motorcyclist’s 10 year old kid is reputed to have figured out. Can you please explain your public assertions about cars subsidising motorcycles? You said that each car on average subsidises motorcyclists by $77 per year. Thats about $200m of subsidy. So the cost of caring for motorcylists would need to be the $13m of levies from motorcyclists plus the $200m subsidy = $213m. But actually your total bill for motorcylists costs was $62m. Was this just a mistake?

Thanks for listening. And by the way, I really do want answers to my questions.

Yours sincerely

John Small

One of the reasons ACC wants to increase its levies is that some of its investments went bad. In addition, we are still playing catch up for the fact that the scheme was not fully funded prior to July 1999. Fair enough perhaps, but these are both scheme-wide factors, so we’d expect them to flow through to the individual accounts in a reasonably even-handed way. Not so, it seems. Here are my calculations based on a review of the (separate) documents ACC issued for each of the three big accounts: employers, employees, and motorists. They break the increases down into 3 categories: cost of claims; cost of running ACC and “funding adjustment” which covers income losses and the pre-1999 catchup.

This shows that the vast majority of the increases are to cover income losses and pre-1999 catchup. Scheme cost increases are pretty modest, as is the cost of claims. It also suggests that motorists have copped significantly bigger increases for these scheme-wide factors than the other groups.

I was hoping to be able to post this morning about two questions I’ve put to the ACC, but they haven’t answered yet, so I’ve had a look at the accident data instead.  As a lane-splitting motorcycle commuter this is a touchy subject for me, even though I’ve been doing it morning and night on Auckland’s motorways for 8 years without a prang (touches wood, crosses fingers).

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