Understanding CTP Insurance & How It Works

Understanding CTP Insurance & How It Works

The Motor Vehicles Act was introduced in 1942. It was the first Compulsory Third Party (CTP) personal injury insurance because, before that time, personal injury entitlements were determined by common law. This means injured individuals had to establish legal negligence of the at-fault driver to be compensated for their injuries. The injured person had to collect personal injury cost from the at-fault driver. If the at-fault driver did not have the financial resources, the injured party or parties received no compensation. With this insurance, the first party is the insured vehicle owner, the second party is the insurer, and the third parties are those injured in the accident. 

Understanding CTP Insurance & How It Works

The numbers of cars on the road increased after WWII and resulted in the increased number and severity of accidents and personal injury. The mandatory requirements caused an increase in CTP insurers 360% in its first 10 years. Compulsory Third Party (CTP) insurance compensate people injured or killed in an accident and is mandatory in all Australian states. Drivers are required to purchase CTP before or at the time of vehicle registration. States may differ on factors, such as fault, injury, liability and compensation, and also on requirements for vehicle registration. The vehicle may have to pass a safety inspection, and the vehicle owner may have to verify their identification. CTP is compulsory to compensate injured parties regardless of the driver’s ability to pay. It guarantees some compensation for injured parties. It does not cover property damage, however.


CTP covers the vehicle owner and others who use the registered and insured vehicle, with or without permission, from the financial burden of causing injury or death to others on the roads in the event of an accident anywhere in Australia. The vehicle owner cannot make a claim if at fault. In most accident cases, the fault is shared between the drivers. At fault, drivers may be able to receive compensation for injuries from the other driver’s insurer if the driver contributed to the accident.


Suppose a CTP insured driver is involved with an uninsured, unregistered vehicle. In that case, they still may be covered under the Nominal Defendant Scheme, and their claim may be managed by the CTP insurers. They may also be covered by the Lifetime Support Scheme (LSS). LSS offers support to very serious, lifelong injuries and provides the necessary and reasonable treatment and care. The insured vehicle owner may also be able to file a not at fault CTP claim and an LSS claim.


CTP does not cover damage to vehicles or their contents. It does not cover cyclist who injures themselves or others because they are not required to have CTP insurance. It does not cover single-car accidents such as a driver hitting a tree, but if the driver sustains lifelong injuries, they may be covered by LSS. The cost of injury claims for an accident can be recovered from the vehicle owner by the insurer if the obligation of the insurance is not met or if their conduct caused injuries. Obligations prohibit: 


  1. Driving under the influence of drugs or alcohol, 
  2. Driving dangerously, 
  3. Intentionally causing injury, 
  4. driving without a current driver’s license, 
  5. driving an unroadworthy or overloaded vehicle, 
  6. committing a hit and run.


CTP does cover passengers in your vehicle, other road users, including drivers and passengers in other vehicles involved, pedestrians, cyclists, and motorcyclist and their passengers. It also covers injuries caused by a trailer attached to a registered and insured vehicle. Suppose the injured person is unable to work or need medical treatment. 


In that case, the CTP insurer pays them a lump sum to cover medical and rehabilitation treatments and any loss of income caused by the accident. The claim can also include funeral expenses if the accident resulted in death. CTP schemes have been reformed often since its inception, with the latest being in 2017 to better support people injured on the roads & to reduce the cost of green slips for vehicle owners.


The Australian Capital Territory (ACT) publication “Understanding Compulsory Third Party (CTP) Insurance in the ACT” tell more details about this type of insurance, its benefits, cost and statistics, including how premiums are set and how premium dollars are spent. It also tells how to file a claim and what to expect, including the time frame of compensation. It also reports the yearly average cost of CTP in Australia is between $495 and $560 per year. There are other interesting information, such as from 2016 to 2017, over 75% of CPT claims were for minor injuries like whiplash. The average whiplash claim cost under $90 thousand, with all claims amounting to $39 million of the total $108 million paid out in claims that year. CTP compensate those injured in vehicle accidents on the roads of Australia.