Workers Compensation – significant premium increases flagged as schemes report financial crisis

With the two largest workers compensation schemes in Australia flagging significant impending premium increases, employers are facing a challenging period ahead as we draw towards the end of the 2023 financial year.

In this article, we set out factors impacting the current state of workers compensation and strategies for employers to help offset premium uplifts.

Recent events impacting workers compensation
New South Wales - icare scheme

A NSW Treasury briefing note leaked to media outlets in November 2022 has raised concerns about the financial sustainability of NSW’s workers compensation scheme, indicating that premiums would need to increase by a minimum of 33 per cent by 2025 to cover current shortfall.

The briefing note prepared by Treasury for Treasurer Matt Kean and Finance Minister Damien Tudehope, stated that the scheme is currently in financial crisis due to a range of factors adversely impacting icare’s financial position including deteriorating return to work performance, medical inflation and premiums priced below breakeven since 2016.

Based on the $3B paid by employers in NSW each year, a proposed 33 per cent increase could potentially cost employers a whopping $1B in additional premiums each year. It is no secret that the workers’ compensation landscape across the state has been significantly disrupted over the past few years due to imposed market changes and the Covid-19 pandemic and unfortunately this recent note from NSW Treasury will not ease employers’ minds about what the future holds for the scheme.

In an attempt to improve performance, icare recently completed an extensive tender review of the Claims Management Service Providers in NSW and subsequently announced in October 2022 that they will be renewing the claims agent licences for EML, GIO, Allianz and QBE and also issuing new licences to DXC and Gallagher Bassett which will commence in January 2023 and expand the service offering for employers.

Additional market competition for claims agents will ideally encourage an improvement on the scale and quality of claims service currently being provided to employers and in turn lead to improved returned to work rates and lower premiums. However, if the dire NSW Treasury forecast is accurate then an immediate and drastic improvement in scheme performance will be required otherwise the impact on employers by 2025 could be catastrophic.

Victoria - WorkCover scheme

A government spokesperson in March this year described the scheme as “fundamentally broken” saying “the scheme is no longer fit for purpose and does not meet the modern needs of those it was originally designed to assist more than 30 years ago.” The Government is now reportedly working with stakeholders to examine all options and “take urgent action to ensure the ongoing sustainability of the scheme”.

Significant failures and inefficiencies in the scheme have been identified in recent years culminating in a comprehensive review of the scheme which was requested in 2019. The review report released in April 2021 made 22 recommendations aimed at improving the administration and management of complex claims. If implemented, this would constitute the largest reform to WorkCover since its inception in 1985.

The figures which have lead to the current crises paint a stark picture. Payouts exceeded premium revenue by $1.1B in 2022 and that gap is tipped to grow. Across the scheme a deficit of $1.6B was recorded in the 2022 financial year.

This is largely driven by the number of long term claims (where workers are unable to return to their jobs for longer than 130 weeks) nearly doubling since June 2016 according to government figures. Mental health claims currently represent around 16 per cent of all claims and are increasing year on year by around 3.5 per cent.

Now, just months after the Victorian state election, the Andrews Government is flagging higher premiums for businesses in an effort to regain financial stability. Other ideas to reign in the scheme, currently being canvassed by the government to business leaders and unions, include limiting mental health injuries to post-traumatic stress disorder (PTSD) and excluding bullying and harassment.

What can employers do to prepare for premium increases?
  1. Ensure appropriate forecasting and tracking of your workers compensation premium is currently in place to prepare for these flagged rate increases.

  2. Understand the key performance factors driving your premium and how they can be improved, noting that each state/territory in Australia calculates premium differently.

  3. Explore the different claims agent options available in both NSW and Victoria to ensure the best possible claims service is being provided to your business.

If you would like to discuss how to implement some of these recommendations and work to reduce your workers’ compensation premium, please contact Andrew Jamieson and the Bellrock Benefits team here.

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