Workers Compensation News – Winter 2011Welcome to the first edition of our Workers Compensation News. The aim of this newsletter is to summarise recent developments in the workers compensation space that will hopefully be of interest.

We plan to make this a regular publication, and welcome any feedback and suggestions for topics you may like to see covered in future editions.

In this edition:

>> Claim frequency trends across most of the Australian jurisdictions

>> Premium rate trends, again across most jurisdictions

>> A brief overview of the proposed National Disability Insurance and

National Injury Insurance Schemes

>> The latest developments in New Zealand, relating to the introduction

of choice of provider of workplace accident insurance and also

extending the Accredited Employer Programme

>> Some of the more pertinent recent developments in each workers

compensation jurisdiction in Australia.

d’finitiveKeeping you informed. JUNE 2011

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Claim Frequency Trends

The graph below shows the year-on-year change in ultimate claim frequency between 2007/08 and 2008/09 and between 2008/09 and 2009/10. Note the graph compares the actuarially assessed ultimate claim frequencies for successive years (with the exception of Queensland where the frequency is based in the number of intimated claims).

Between 2007/08 and 2008/09 there were across the board improvements in claim frequency. Claim frequency changes between 2008/09 and 2009/10 were more mixed. Victoria (centrally funded) and the ACT (privately underwritten) stand out with frequencies increasing by 4% and 10% respectively. In Victoria, the claim frequency continued to increase in the six months to 31 December 2010 (by 2.4%), attributed to strengthening economic conditions and an increase in hours worked.

Other states’ frequencies fell but generally not as strongly as the year before. The largest fall was in Western Australia (8%), although we note that the latest recommended premium rates report for WA indicates that claim frequency has deteriorated in 2010/11.

Last year, we surmised that the reduction in frequency observed in 2008/09 could reflect, at least partly, a decline in workers’ propensity to claim caused by the GFC, and predicted that the frequency reductions may not continue or could turn-around. With a return to more normal economic conditions over the course of 2009/10, there is some evidence that this has eventuated.

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Frequency Change

CHANGE IN CLAIM FREQUENCY

2008/09 2009/10

JurisdictionPrivately UnderwrittenCentrally Funded

10%

5%

0

-5%

-10%

-15%

Vic Qld SA WA Tas ACT NTNSW

Premium Rate Trends

The graph below shows the average premium rates in each Australian jurisdiction over the last three years (where available), expressed relative to the rate charged in that jurisdiction in 2007/08. So for example, if the premium rate index was 100 for all years shown, then the average premium rate would be unchanged over the period. If the premium rate index is 95, then the average premium rate would have fallen by 5% relative to the 2007/08 premium rate.

Premium rates declined in 2010/11 across the centrally funded jurisdictions, except in Queensland where there was a 13% increase, reflecting the common law pressures in that state. Each of these jurisdictions has held premium rates steady in 2011/12, again with the exception of Queensland where the average rate increased by a further 9%. We note that Comcare have not yet announced the premium rate for 2011/12, and press reports are speculating that Comcare’s rate will also rise.

In the privately underwritten jurisdictions, WA’s continued wage growth in 2009/10, coupled with a fall in workers’ compensation claims, resulted in a reduction in the recommended average premium rate of 14% in 2010/11. However, the recommended premium rate has increased by 3% in 2011/12 in response to higher reported claim numbers in the six months to December 2010.

In Tasmania, the suggested average premium rate increased by 2% in 2010/11 due to the introduction of the 2009 legislative reforms, the impact of which was mostly offset by other favourable impacts. In 2010/11, the suggested rate has increased by a further 4% due to lower wages growth than anticipated. Another factor that is likely to increase costs to employers in Tasmania is the introduction of the Asbestos Compensation Scheme (should it become law); the Scheme is expected to be funded by a 4% levy on premiums.

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2009/10 2010/11

Jurisdiction

Premium Rate Index (07/08 = 100)

PREMIUM RATE INDEX

120

100

80

60

40

20

0

2008/09

Centrally Funded Privately Underwritten

NSW Vic Qld SA Comcare WA Tas ACT NT

For the centrally funded schemes, the rate shown is the target rate set by the relevant regulator. For the privately underwritten

jurisdictions, the rate shown is the rate achieved by insurers, noting that this can differ from the recommended/suggested rate. The

rates for WA and Tasmania for 2010/11 are estimated based on movements in the recommended/suggested rates since 2009/10.

National Disability Insurance and National Injury Insurance Schemes – by Andrew McInerney

The Productivity Commission (PC) draft report on the findings of its enquiry into the National Disability Insurance Scheme (NDIS) was released in February. The period for public submissions on this report closed in April 2011, and the Productivity Commission is due to release its final report to Government in July 2011.

The key PC proposal is for the introduction of a National Disability Insurance Scheme (NDIS) to provide long-term cover in the event of significant disability, no matter how that disability was acquired. This would cover care, support, aids, etc, but not income replacement, aged care or direct medical costs. Around 360,000 people would receive funding under this Scheme. The NDIS would be funded on a PAYG basis, but managed and reported on a fully funded basis so as to guide decision making.

A second scheme – the National Injury Insurance Scheme (NIIS) – would provide no-fault lifetime care and support for catastrophic injuries. NIIS would be a federation of individual state and territory schemes, and operate on a fully-funded basis.

The proposals have significant ramifications for personal injury insurance classes. While workers compensation will be less affected than CTP or medical indemnity classes due to relatively fewer numbers of serious injuries and the already no-fault coverage, direct spending by workers compensation schemes will presumably fall once the care and services provided to disabled Australians becomes funded through the NDIS and NIIS. The cost implications of the NDIS and NIIS will vary by jurisdiction depending on the benefit structure and interaction of statutory and common law benefits. The funding mechanisms for the NDIS and NIIS are still to be determined, and may potentially include contribution from existing schemes.

Developments in New Zealand – by Aaron Cutter

On 1 June 2011, the New Zealand Government announced consultation with the public on increasing choice in workplace accident compensation. There are two key proposals to be consulted on:

>> allowing choice of workplace accident insurance cover

>> extending the Accredited Employer Programme (AEP).

Allowing Choice of Cover

This proposal would allow choice of workplace accident insurance cover from October 2012, allowing employers to choose from either a New ACC Work Account or from a private sector insurer. The proposals setting out how choice would be introduced are:

>> ACC would continue operating in its current organisational form as a Crown agent. In particular it would not be required to adhere to the same solvency standards as the private market nor would it pay tax or tax equivalents. However, the proposal is for ACC’s management of the New Work Account to be transparent to the market. In particular, there would be a requirement for independent oversight and for financial disclosures to be made public

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>> insurers would be subject to prudential regulation and capital requirements that reflect the particular risks of work-related personal injury insurance, and would be subject to company tax

>> ACC’s Work Account products and prices would be deregulated to provide it with flexibility to compete. However, ACC and the private market would be required to at least meet existing minimum worker cover and entitlements.

>> if an insurer became insolvent, ACC would take over claims management and costs would be met by a levy on all insurers

>> a single claim lodgement unit would be established in order to minimise administration for the health sector

>> a market regulator would be responsible for monitoring and enforcing employer and insurer compliance with legal requirements.

These points are taken from the Department of Labour – Te Tari Mahi discussion paper which invites feedback on the proposals to be provided before 5pm on 15 July 2011.

The Minister for ACC, Hon Dr Nick Smith, is to report back to Cabinet Economic Growth and Infrastructure Committee (EGI) by 17 August on the preferred approach to increasing choice in ACC’s Work Account.

Extending the Accredited Employer Programme

This proposal would extend the Accredited Employer Programme (AEP) from April 2012, with the aim of allowing smaller to medium sized employers to buy into the financial cost of their claims and the management of those claims. Proposals include:

>> allowing employers a wider choice of deductible for high cost claims (including introducing high cost claim cover for those employers that take on “full self-cover”) and the level of stop loss available. Currently the ACC provides both HCC and Stop Loss protection for the AEP, and it is proposed that this be opened to allow insurers (registered under the Insurance (Prudential Supervision) Act 2010) to provide this reinsurance product.

>> reducing barriers to make it easier to participate in the AEP, including a more flexible choice of time period for which claims management is the responsibility of the employer rather than ACC. This greater flexibility also opens up the breadth of services that may be provided by external claims management providers.

These changes are potentially going to be in place for a 1 April 2012 start.

New Zealand remains the most likely prospect for insurers to increase workers’ compensation premium revenue. Levy consultation documents last year suggested income of around NZD$800 million (approximately AUD$600 million) in relation to the 2011/12 accident year, putting the potential New Zealand revenue at around 60% of the privately underwritten Australian jurisdictions.

Stakeholder views

The market’s reaction to the recent announcements concerning increased choice has been mixed. While many in the insurance industry are encouraged by the prospect of private delivery of workplace accident insurance, there is some concern about how competition with the ACC will work in practice given the government guarantee and with no requirement to hold capital, provide a return on capital or pay a tax equivalent.

The absence of a “level playing field” is seen to pose a threat to a long term stable market developing. However, the Government is committed to achieving long term sustainability and stability for the ACC, the private sector and employers and is open to feedback around principles of prudent pricing that can be included in ACC’s deregulated New Work Account rates such that practical and workable competition is fostered.

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Recent Developments in each Australian JurisdictionThis section briefly touches on recent developments in each of the Australian schemes.

NSW

On 1 June 2011, The NSW Government passed a Bill to enact the national model work health and safety legislation, as part of its commitment to the harmonisation of work health and safety standards across Australia. The new laws are intended to reduce compliance costs for employers and make laws easier to understand.

NSW introduced the retro-paid loss premium method as an alternative for calculating premiums for large employers from 30 June 2009. The method derives the employer’s premium almost entirely from their own claims experience during the period of the insurance policy. As at 30 June 2010, 29 organisations incorporating 136 entities chose to take up this opportunity.

Victoria

WorkSafe’s half year financial results to 31 December 2010 show a net result after tax of $396 million, with the funding ratio remaining unchanged from June 2010.

WorkSafe announced a new panel of Agents to manage its premiums and claims from 1 July 2011, comprising Allianz, Xchanging, CGU, Gallagher Bassett Services and QBE. GIO’s contract with WorkSafe was not renewed. New contracts are to run for 5 years.

WorkSafe implemented a range of strategies designed to control their legal costs and have begun a process aimed at curbing continued above inflation growth in plaintiff legal costs. Measures include a focus on encouraging earlier settlements and amendments to legislation to enable a more predictable model for plaintiff lawyer remuneration.

Queensland

As a consequence of the deteriorating common law experience observed in 2008/09 and 2009/10 (both in numbers of lodgements and the average cost of settlements), the Queensland Government announced a number of reforms effective 1 July 2010, including:

>> harmonisation of the workers compensation arrangements with the Civil Liability Act 2003, essentially incorporating the use of the Injury Scale value (ISV) to determine general damages awards (as already exists for CTP and liability claims)

>> increased onus of proof on workers to demonstrate employer fault

>> allowing for costs against plaintiffs whose cases are dismissed

>> increasing the employer excess from 65% to 100% of the Queensland ordinary time earnings or one week’s compensation.

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South Australia

Following the 30 June 2010 reporting of the first full year profit in the past ten years, SA WorkCover achieved a half year profit of $117 million for the six months to 31 December 2010. The scheme’s unfunded liability fell to $865 million, and the funding ratio was up around 5% from the 30 June 2010 position.

A review of the 2008 WorkCover reforms commenced in January 2011, headed by former SA Courts Administration Authority Chief Bill Cossey and PricewaterhouseCoopers’ partner Chris Latham, to assess:

>> the impact on injured workers of the Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 (The amending Act)

>> the impact of the amending Act on levies

>> the impact of the amending Act on the funding position of WorkCover.

The Cossey-Latham review has received many submissions from employer and union groups. The final report was provided to the Minister for Industrial Relations on 24 May and must be submitted to both houses of Parliament within six sitting days (likely to be before the end of June).

WorkCover is exploring a new employer payment system for the scheme. Options being considered include a system which reflects the employer’s size and experience, and a ‘retro-paid loss’ model for large employers (those paying more than $500,000 p.a. in levy). The previous bonus-penalty scheme was removed from 1 July 2010, with all employers now paying the published industry rate. Previously employers with low claim expenses could get premium discounts of up to 30%, whilst poor performers paid penalties of up to 50% of the base premium.

A PwC review of vocational rehabilitation services, published March 2011, found an increase in utilisation and cost of such services with little observable improvement in return to work outcomes. In response, the WorkCover Board has approved a number of initiatives, including -

>> better definition of quality and skill within the rehabilitation industry

>> improved regulatory influence

>> ensuring capability improvements in case management

>> changes to fee structure designed to reward improved outcomes.

Comcare

The moratorium on private sector companies joining Comcare is expected to remain until 2012, when uniform work, health and safety laws will be in effect.

Comcare implemented a new claims management and service delivery model on 7 February 2011, focused on returning injured workers to work as early as possible. Under the new model, claims will be managed by segments:

>> Stay at work – for injured workers who are expected to have less than four weeks off work or are back at work and require some regular ongoing support or treatment

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>> Return to work – for injured workers who are expected to have more than four weeks off work and who face barriers to an early return to work

>> Return to independence – for injured workers with serious injuries requiring long term care or with poor return to work prospects.

Western Australia

The Workers’ Compensation and Injury Management Amendment Bill 2011 was introduced in March 2011. Key changes introduced by the bill include:

>> The abolition of age based limits on entitlements

>> Access to common law for injured workers employed by uninsured employers

>> Improvements to dispute resolution arrangements

>> Amendments to address technical issues with the previous legislation.

Tasmania

The Review of Tasmanian Guide to Assessing Impairment has been completed and approved by the Board. The revised guide includes an assessment template to provide greater clarity around the assessment process, and became effective on 1 April 2011. As part of the introduction of the new Guide, training of all assessors will be provided, with the aim of leading to greater consistency in impairment assessments.

The period for public comment on the draft Asbestos Related Diseases (Occupational Exposure) Compensation Bill 2011 closed in April 2011. The purpose of the Bill is to:

>> Provide no-fault statutory compensation to workers with asbestos related diseases

>> Overcome confusion in the current system between the Workers Compensation Act 1927 and the Workers Rehabilitation and Compensation Act 1988

>> Provide for workers who have passed retirement age

>> Circumvent the need for workers to access the common law system.

If legislated, it is expected that a levy of 4% of premium will be introduced to fund the scheme.

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ACT

The Exposure Draft Workers Compensation Amendment Bill 2010, released for public consultation in October 2010, proposed a number of changes to the workers compensation legislation in the ACT. The main features of the Bill are:

>> Lump sum entitlements to be based on the concept of Whole Person Impairment (WPI) including the introduction of WPI thresholds for access to common law and impairment benefits. Impairment benefits would also be linked to assessed WPI

>> Increase in the lump sum death benefit from $150,000 to $450,000 and increase in the maximum compensation for funeral expenses from $4,000 to $9,000

>> The creation of a Permanent Impairment Assessment Panel and the introduction of a process for assessment of a worker’s WPI

>> Introduction of a dispute resolution process including a compulsory settlement conference and the exchange of final offers prior to proceeding to hearing

>> Restriction on the advertising of legal services and amendments to enable the Minister to determine the maximum legal fees.

We understand that comments received during the consultation period are currently being considered.

Sources

NSW: WorkCover NSW, Actuarial valuation of outstanding claims liability for the NSW Workers Compensation Nominal Insurer as at 30 June 2010, 1 October 2010 prepared by PwC

VIC: WorkSafe Victoria, Actuarial Valuation of Outstanding Claims Liability for the Scheme as at 31 December 2009, 12 April 2010, prepared by PwC. WorkSafe Victoria Annual Report 2010

QLD: Q-Comp 09/10 Statistics Report, WorkCover Queensland Annual Report 2009/10

SA: Summary of Scheme Actuarial Review as at 30 June 2010, September 2010, prepared by Finity Consulting. WorkCover SA Annual Report 2009/10

Comcare: Comcare 2010 e-Newsletter, Safety Essentials – Winter 2010

WA: WorkCover WA, 2011/12 Recommended Premium Rates Report, April 2011 prepared by PwC

TAS: WorkCover Tasmania, Development of Suggested Industry Premium Rates for 2011/ 12, April 2011 prepared by Finity Consulting

ACT: ACT Private Sector Workers’ Compensation Claim and Payment Profile 2009/10, May 2011

NT: Actuarial Review of the Northern Territory Workers Compensation Scheme as at 30 June 2009, 4 November 2010, prepared by Marsh

WORKERS COMPENSATION NEWS – WINTER 2011

Privately underwritten jurisdictions working together

The privately underwritten jurisdictions of Western Australia, Tasmania, the ACT and the Northern Territory are currently working on a common data specification for the workers compensation data items collected from insurers and self insurers in each jurisdiction. Each of the jurisdictions was at a point where their databases needed to be upgraded, and this was the ideal opportunity to work together. Once the data specification is agreed, each jurisdiction will pick and choose the data items it wants to collect from the agreed set of fields. A copy of the draft data specification has been sent to APRA for comment.

We think this is a great initiative by the regulators. Once established, the result should be a much more streamlined data submission process for insurers and self insurers who generally write business/self insure across multiple jurisdictions.

Finity’s Workers Compensation Team

Within Finity, we have a dedicated Workers Compensation Team which specialises in workers’ compensation insurance consulting. We have provided strategic and analytical advice and support to most workers compensation schemes in Australia and New Zealand.

In addition to our actuaries, Finity has a dedicated team of claims and operational insurance experts within our management consulting practice who provide claims management and strategic advice to assist Schemes and insurers.

Contacts

Geoff Atkins geoff.atkins@finity.com.au 02 8252 3337

Karen Cutter karen.cutter@finity.com.au 02 8252 3386

Andrew McInerney andrew.mcinerney@finity.com.au 02 8252 3372

Aaron Cutter aaron.cutter@finity.com.au 02 8252 3321

This article does not constitute either actuarial or investment advice. While Finity has taken reasonable care in compiling the information presented, Finity does not warrant that the information is correct.

Further clarification can be sought from our consultants.

Copyright © 2011 Finity Consulting Pty Limited

Please feel free to contact one of our workers compensation experts if you have any questions or comments on the information presented.

If you would like to be added to the mailing list

for future editions of Workers Compensation News,

please contact:

Tracey Bowe on 03 8080 0904 or

tracey.bowe@finity.com.au

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Contact the Author

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Australia

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New Zealand

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Wellington

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