Author: Richard

Attached is a PDF of an article which the reader may find interesting.

ICNSW Annual Report Commentary

 

I stand before you silently weeping.  My tears are borne of despair, disappointment and frustration.  I despair that my faithful mistress, WorkCover Authority (WCA), who has nurtured me for nigh on 30 years is on her deathbed.  Vale WCA.  I’m disappointed that the NSW Liberal Government has renounced its belief that government should not compete with an efficient private sector and has not privatised workers compensation.  I’m frustrated that the Federal Liberal Government has not enforced the COAG Competition Principles Agreement (in NSW a public monopoly administers workers compensation).  But more of this later.

WCA’s three offspring, icare, SIRA and WorkSafe are already carping with joy at the prospect of their impending inheritances, but since WCA is shuffling off intestate, bickering amongst the children is rife with each seeking to maximise their pickings from her mortal remains.

Perhaps now would be as good a time as any to eulogise WCA as a creature borne of convenience.  WCA was created by Barry Unsworth’s Labor Government in 1987 following the calling of that Government’s bluff by private insurers who previously underwrote workers compensation.  The scheme, by 1985 had been subject to such political interference that it had become financially unsustainable and insurers put the Government on notice that either significant change was made or they would withdraw from private underwriting.  The Government did not make the changes and most of the insurers withdrew.

This caused a crisis and forced the Government’s hand, resulting in a managed fund scheme which was to be managed by those insurers who wished to participate and more than a dozen chose to do so.  The scheme was called the WorkCover Authority.  Throughout the preceding 30 years, the scheme has been again and again subject to major political interference with surpluses and blowouts common features.  The scheme’s financial uncertainty mattered not to the Government nor the insurers since neither has any responsibility for the financial performance of the scheme, this lies with employers (even though employers have no input into the scheme’s management).

30 years on and WCA has outlived her usefulness and it is time to make a change; let it never be forgotten, that the grand old dame has served her purpose faithfully and well.

Whilst WCA’s progeny jockey for position it might be timely to consider what the alternatives to a managed fund scheme might be.  From what is beginning to emerge, it is highly likely that icare will subtly move to create a centrally managed fund whereby all of the functions of workers compensation are managed by her alone.  There will no longer be any competition on service by insurers wishing to maintain or increase market share.  There will be a central agency, icare, who will manage everything workers compensation related.

Each of the insurers who have diligently worked so hard to develop the competencies and systems needed to discharge their contractual obligations to WCA are also in disarray.  They have each been told that one of their primary functions (underwriting) is to be no longer; icare has already staked her claim.

Is a centrally managed fund the better alternative?  Well it works well in Queensland, or so they say.  It can also be a law unto itself with no transparency or accountability.  Icare loves this concept and has already taken some telling steps to minimise any scrutiny from external, interested parties.  No longer is the NSW actuarial scheme valuation published as was the case under Labor, meaning that we can’t know whether the scheme is charging employers more premium than what is required.  Insurance premium rates are now regarded by icare as “commercial in confidence” and no longer published.

A centrally managed fund established and managed by a government body would appear to confound many Liberal principles of competition and government business but the Baird Government appears to be complacent about this.  “Keeping NSW Working” the catch cry of the Baird Government, seems to be an ephemeral concept since well over 150 insurance jobs are to be lost as a result of icare taking over workers compensation underwriting.

Perhaps I misjudge icare and my earlier frustrations may be unfounded.  What if icare is deliberately setting up an insurance company to underwrite and manage workers compensation?  It has already taken over underwriting, it is building a claims management system and is rumored to be about to take on all of the high needs claimants currently managed by insurers.  The creation of SIRA and SafeWork has separated the regulatory and insurance functions of the old WCA.  What if icare then floats the insurance company?  Would this not be a win for all?  The NSW Government would gain a $1 billion in extra funding and lose any perceived (by ratings agencies) liabilities for future claims.  If such a float is contemplated, then private underwriting will need to be introduced to satisfy competition principles which in turn will bring back insurer competition and private sector efficiencies.  Alternatively, as the SA Government did with CTP, icare could invite selected private insurers to tender for a portion of the insurance company and achieve the same objective.  Machiavellian at the least!

SIRA is also seeking to exert his new powers following the demise of WCS but not without some early blundering.  Changes to the way that claims are managed by insurers are being made by decree and without an Authority to do so.  For instance, on 29 July SIRA published Orders related to fees for Psychology and Counselling Services relying on the provisions of s61(2) of the 1987 Act for its powers to do so.  The difficulty with SIRA issuing such orders (as pointed out by WIRO) lies with s59 of the Act which defines medical or related treatment.

According to WIRO “the clear statements by the Court of Appeal in two cases appear to cast significant doubt upon the power of SIRA to determine that “Psychology and Counselling Services” fall within the definition in sect 59.”

In the months to come, expect more changes, some will be beneficial others less so.  Expect to see more words and phrases like exciting, transparent, we have listened, simplified way, works in partnership, tailored insurance and putting customers’ needs at the centre of everything they (icare) do.

Meanwhile, I’m an old man who continues to mourn over the loss of his faithful mistress, WCA.

In a move which has confounded many observers and which may well be in contravention of its own Guidelines, the NSW WorkCover Authority has refused to publicly release workers compensation premium rates.

Since the advent of the managed fund scheme in 1987, Insurance Premium Orders have been gazetted which set out the manner in which NSW employers will be charged premiums.  It used to be a transparent process whereby the NSW Parliament and every employer was able to compare rates and changes in the system.

Under the Baird Government, not only has the rate setting transparency been done away with, many of the other previously available notifications about the scheme are no longer available.  For example, under the Labor Government, the full scheme actuarial valuation was published on the WorkCover web site, Labor obviously felt that they had nothing to hide.  The Liberal Government ceased to publish Statistical Bulletins which set out claims and injury facts and figures.  It was only following an Upper House Inquiry into the WorkCover scheme that the publication of Statistical Bulletins has been reinstated.

The WorkCover bureaucracy is currently in the ascendancy and it is now common practice for claims management changes to be made by decree rather than by an informed and consultative process.  For example, the Executive Director of the Authority instructs its agents on how it expects them to manage certain claims events rather than developing Guidelines or making changes to the Regulations.  Perhaps the newly created State Insurance Regulatory Authority can reign in the bureaucratic enthusiasm?

One of the unintended consequences (we are sure) of Brexit has been the tanking of the Aussie bond rate.  Why does this effect workers compensation you may well ask?

In calculating outstanding claims liabilities, actuaries discount future gross claims payments to present value using a risk free rate, typically the government bond rate.  To the extent that the bond rate is not matched by assets held in bonds, liabilities will be inflated by the downward trend in the bond rate, thus eroding the scheme’s surplus.

As at 30.6.2015 the NSW scheme surplus was $3.992 Billion.  Unless Icare has over collected premiums in the past year (as it has done for several years), the surplus should have been reduced by the bond rate tanking and the generosity of Minister Perrottet in handing back $1 Billion to claimants and employers.  We suspect that premiums have been over collected yet again, and that the surplus is still a healthy $4 Billion plus.  Without the publication of the actuarial valuation we may never know the true extent of any surplus or deficit.

Bureaucrats do not learn easily and often make the same mistakes over and over again.  Hence we were not surprised when we heard a rumour that Icare was seeking to reduce the fees paid to Agents who manage the NSW Treasury Managed Fund.  TMF is a self-insurance scheme which funds all of the NSW public servants’ claims.  Imagine if you will, that the costs of all TMF claims are represented by a pie chart.  A slice of the pie, say 15% is the cost paid to Agents for claims management services.  The rest of the pie (the biggest slice) is claims payments.  If your objective is to minimize claims liabilities, where will you get the best result?  Cutting the big slice or cutting the little slice?  This what the bureaucrats have yet to learn.

Over time, Agents’ fees in the WorkCover Managed Fund have been pared back by the bureaucrats and now represent approximately 9.6% of claims costs.  The result of that cost cutting has been a dumbing down of the NSW workers compensation industry with Agents just managing to do a reasonable job.  If asked whether they could improve the management of claims and achieve better outcomes for injured workers and cheaper premiums for employers, all Agents agree that you only get what you pay for.  They all agree that if they were paid appropriately they could do a better job.

A big elephant in the room is of course, which of Icare’s agents will be pushed onto its sword.  Claim numbers have reduced dramatically; tail claims have practically disappeared from the scheme as a result of the 2012 amendments and new serious claims have dropped to below 30,000 a year.

Why then do we need five agents?  6,000 claims a year is not sufficient numbers for an Agent to maintain an effective or efficient claims management system.  15 case managers should be able to manage 115 new claims lodgements each week.  On that basis the whole scheme needs 75 case managers; a generous allowance of 100 case managers for the whole scheme would cater for absences and staff turnover.  The scheme’s management would be much more efficient if only two or three agents were appointed by Icare and would probably cost the scheme considerably less.  The question is which one(s) should go?

All employers need to keep a close watch on what their WorkCover insurer is up to because the insurer may not be acting in their policy holders’ best interests.

A letter dated 29 June 2015, from WorkCover to its Agents contained a “direction” that when a referral to an Independent Medical Examiner (IME) is to be made in future, an injured worker must be afforded the opportunity to select their own IME.

As those who may be familiar with the way the WorkCover system operates, IMEs are used for any number of reasons when the employer (insurer) wants an independent opinion on diagnosis, treatment or liability.

The right of an employer to refer a worker who has made a claim to an IME is enshrined in Section 119 of the 1998 Workers Compensation and Injury Management Act, but was originally contained in the very first NSW Workmens’ Compensation Act of 1910.

Schedule 8 of the 1910 Act provided that “Where a workman has given notice of an accident he shall, if so required by the employer, submit himself for an examination by a duly qualified medical practitioner provided and paid by the employer; and if he refuses to submit himself to such examination, or in any way obstructs the same, his right to compensation shall be suspended until such examination take s place.”

By directing its Agents to ignore the provisions of the current Workers Compensation Act thereby overturning an historical precedent that has been the right of an employer for more than 100 years, WorkCover has acted ultra vires and may possibly have given an unlawful direction.

All employers need to remember that provisions of Section 119 (subject to the WorkCover Guidelines, which are silent on this matter) provide an employer with an absolute right to refer an injured worker to a medical practitioner of the employer’s choice.

When an Agent implements a procedure which permits a worker a choice of IME, without first consulting with the employer, they will be in breach of the intent of the legislative provisions which provide the employer with an opportunity to independently test the opinions of a NTD or of a NTS using a medical practitioner of their choice and not one chosen by the worker concerned.

In issuing the direction to its Agents, WorkCover seems to have embraced the idea of the worker being given a choice of IME, on the basis that it will reduce disputation.  This demonstrates a fundamental misunderstanding of the purpose of the Section 119 examination which is for the benefit of the employer and not an injured worker.

Employers should contact their insurance brokers, industry associations or Agents to ensure that this critical right is not removed or diluted by other than a legislative change, which would be subject to the proper Parliamentary process.

September 9, 2015

According to web site Vocabulary.com, a farce is a broad satire or comedy, though nowadays it’s used to describe something that is supposed to be serious but has turned ridiculous.  Farce is thus an apt description of what NSW WorkCover has become.

At the time of writing (1 September 2015), workers compensation premium notices have just started to be posted out by Agents/insurers.  We understand that the lateness in the date for dispatch of the notices is due to instructions from NSW WorkCover to its Agents, forbidding any correspondence with employers over premium matters.

What was WorkCover seeking to hide you might ask?  Why did Minister Perrottet not intervene, given his commercial and legal background, and his understanding of the budgeting process?

The answer to both these questions lies in the newly minted premium system introduced by WorkCover in June.

First came a period of confusion whereby no-one was able to clearly enunciate what the changes would mean in terms of premium charges.  Even though WorkCover took the view that it had adequately consulted with industry, there was a growing suspicion that premiums would be on the increase.

Then there came a period where advisers and insurers began to prepare premium projections which showed that there were some very big shocks in store for many employers.

WorkCover responded by suggesting that everyone take a cold shower and then a lie down (Bex was mentioned), because there was no problem and if there was, then WorkCover had the answer.

The answer it seems, lies in the application of Schedule 13 of the Insurance Premiums Order whereby employers are entitled to a discount in their premiums at the whim of WorkCover.  There are no details yet of which lucky employers will receive a discount but regardless, this will only be applied at the adjustment of their policies.  In other words no answer at all.

The next couple of months will be very difficult for the WorkCover and Ministerial Spin Doctors when premium notices are finally delivered to employers.  They will need to have answers to some perplexing questions such as “How many jobs opportunities will be lost because of the massive premium increases some 4,000 odd employers will be forced to pay?” and “Why was it necessary to fix a system that was not broken?”

At the same time that the farce over the new premium system was unfolding, Minister Perrottet declared that he had listened to injured workers.  He had indeed and appeared fresh faced and gushing in a video production saying just that.  He then announced a $1 billion reform package to the workers compensation system.

At the last election, the Government committed that every dollar above the minimum surplus needed to keep the scheme sustainable would be returned to injured workers and business in a two third, one third split.

On 2 February 2015, the CEO of WorkCover stated that “WorkCover Insurance writes $2.5 billion in premiums, manages more than $16.9 billion in assets and manages claims liabilities of $14.4 billion”.  This admission that the surplus of assets over liabilities then stood at $2.5 billion, has more than likely blown out to more than $3.5 billion at the time of writing (some observers reckon that it is considerably more).

Nevertheless, the surplus is a finite resource and has already been eroded in the order of $1 billion by Perrottet’s reform package.  The reforms are not in the form of a rebate, they are ongoing changes to the way that benefits are paid and premiums collected.

Changing the scheme in the way that the reform package operates, will completely erode the surplus in a scant three years and NSW employers will back where they were when the Labor Government was in power; i.e. facing another massive deficit.

Obvious alternatives to Perrottet’s imprudent financial management of the WorkCover scheme involve slashing benefits again or increasing premiums again.

Somewhere along the track, the Baird Government seems to have lost its way, particularly when it comes to Workers Compensation.  As the pundits say, history has a way of repeating itself.  Perhaps now is the time to start rolling some heads in WorkCover and in Minister Perrottet’s office.

2 September 2015

January 2015 was a quite month for the media as far as the Minister for WorkCover, Dominic Perrottet was concerned.  In fact he released only one media statement and even that was in conjunction with his fellow Minister for Small Business, John Barilaro.

Under the heading “NSW Government cuts Workers Comp Red Tape for Medium and Large Businesses” Minister Perrottet stated that “WorkCover is moving towards simpler, easier to understand premiums that provide certainty for medium and large businesses,”

He went on to say that “Importantly these reforms will create real incentives for business to encourage safe return and recovery at work for injured employees.”

Small Business Minister John Barilaro went further, saying that these new measures are part the NSW Government’s commitment to improving the work environment for businesses.

“We have 3.5 million workers in NSW – close to three quarters of them work for medium to large employers meaning these reforms will make a real difference to their operations,” Mr Barilaro said.

How much further from the truth could you possibly get?

The WorkCover Minister has presided over one of the greatest cons ever foisted on business from a workers compensation perspective.

The CEO of WorkCover Vivek Bhatia has already admitted that the NSW workers compensation scheme has turned around and is now in a significant surplus of some $2.5 billion.

That surplus represents more than a full years premiums from all NSW employers.

Yet under these new reforms that both Ministers crowed would introduce “real incentives” and “make real differences” have turned workers compensation into a horror show for a large number of unsuspecting employers by pushing up premiums.

Don’t believe me?  Here are some actual results drawn from projections of premiums provided by insurers comparing what the new premiums will be against what they would have been under the pre reform system.

Industry    Real Incentive Premium    Pre Reform Premium    Big New Tax

Aged Care     $865,562                      $751,326                        $114,236

Aged Care     $669,343                      $633,759                        $65,584

Aged Care     $319,140                      $301,205                        $17,935

Logistics        $631,151                      $545,835                        $85,324

Then there’s the poor Food Manufacturer who has had no claims.  Instead of the system providing “real incentives” it does just the opposite by clobbering them with a premium increase!

Real Incentive Premium = $137,547

Pre Reform Premium = $127,985

Big New Tax = $9,562

These are not isolated cases.  We understand that there may be thousands of employers similarly affected.

If you know of someone who has been caught in the tax grab by WorkCover, please contact us by clicking on the Contact tab at the top of this page.

26 June 2015

In a recent media release the CEO of NSW WorkCover Mr Vivek Bhatia gave no indication that large numbers of medium to large businesses across NSW were about to be hit with massive and unexpected premium increases (read Big New Tax).

Some insurers say that the average increase is 24%, which is only reduced by a 10% discount this year for an employer’s safety initiatives.

Regardless of what Premier Baird or Minister Perrottet may say in defence of the massive premium hikes, the NSW WorkCover scheme is $2.5 billion in surplus and growing, so what is the rational for the Big New Tax?

Yet again we see the indiscriminate and shocking effects of intervention from a Government Bureaucracy; there is no competition with WorkCover, it can do as it pleases.

Under the media release heading “New Insurance Reform Guide Good for Business[1]” WorkCover’s CEO Mr Bhatia said “Following the success of premium reforms for small businesses in 2013, similar reforms would be rolled out across medium and large businesses from 30 June.”

Mr Bhatia went on to say “As part of getting ready for the reforms, 14,200 medium and large businesses across NSW will receive a simple user guide to the new renewal process for premiums. It includes a copy of the new, streamlined annual premium renewal form,” Mr Bhatia said.

“We’re keeping business informed by providing this information as part of a campaign of awareness and engagement leading up to 30 June,” he said.

As we understand it, there has been no consultation with those businesses likely to be hardest hit by the Big New Tax, many of which have been given price signals through their past premiums that they are performing well above their industry’s average.

We understand that one of the industries to be clobbered by WorkCover’s Big New Tax is the Aged Care sector, an industry which deals with some of Australia’s most vulnerable citizens.  The Big New Tax is likely to result in the closure of beds and consequent loss of jobs.

A spokesman for WorkCover has stated at various briefings that 18% of NSW employers are performing 200% worse than their industry average, yet failed to identify who these employers are.  In work done in the lead up to the first Rate Filing by the Rating Bureau in the late 1990s similar statistics were identified, begging the question “Exactly what has WorkCover been doing over the last 15 years to improve the poorer performers?”

[1] http://www.workcover.nsw.gov.au/news/media-release/new-insurance-reform-guide-good-for-business

22 June 2015

Leading consulting firm RiskNet Pty Ltd believes that in today’s business environment it is unacceptable behaviour by WorkCover and its Minister Dominic Perrottet to keep major industries in the dark over one of their most significant expenses; workers compensation insurance premiums.

According to Richard Gilley, Director of RiskNet, “Most businesses close off their books in six weeks and are already setting budgets for next financial year, yet they have no certainty over whether to increase their workers compensation premium budgets or not.”  This is the case only in NSW.  In all other jurisdictions, large employers already know what their premiums are likely to be and have been able to budget accordingly.

Gilley says that “Since before the March election the NSW Finance Minister Dominic Perrottet and the WorkCover Authority have been preluding changes to the premium system for medium and large insurers”.

“When first announced, there was a strong suspicion that the changes would hit the premiums of certain employers and groups of employers possibly at the expense of jobs.  We are none the wiser six weeks out from the financial year’s end”.

In a surprise move this week some of the changes have been released.  Sad to say they don’t live up to the claims made by WorkCover or Minister Perrottet that a simpler and more transparent approach would result.

For example, an Employer’s Claims Cost Rate (old ECCR) has been retained but renamed the Employers Claims Performance Measure (CPM).  It still uses three years claims costs and three years wages, but interestingly the claims costs will comprise only selected paid amounts rather than paid amounts plus estimates for future costs.  No details have been released about future large claims limits which are currently set at $150,000.

Paid claims costs will include weekly benefits, death benefits, permanent impairment lump sums, common law payments and commutations.  Gilley says “WorkCover has no understanding of market behaviour, and is now saying that claims conversations will focus on injured workers recovery and return to work, rather than reducing estimates; whereas nothing could be further from the truth”.

“As all employers know by now, the best way of keeping premiums contained is to keep injured workers at work and paying them through their payroll rather than through the WorkCover system.  This has been the case for the last 20 years and is unlikely to change as a result of these reforms”.

“What is likely to emerge is a trend by employers in under reporting or self payment of claims costs or making a concerted effort to delay a payment until three years has passed and the claims is no longer included in premium calculations”.

The big unknown is how the Scheme Performance Measure will affect a high risk employer’s premium.  Currently the 14,200 employers which are rated according to their risk are benchmarked against like employers in the same industrial classification.

Under the reforms, these employers will be benchmarked against the average scheme performance.  This change could have a very significant effect on many high risk employers and they will be forced to pay higher premiums, thereby risking jobs.

The industrial classifications rates are unknown, as is the scheme performance rate.  The capping levels to protect poorer performers are an unknown as are the caps on discounts for good performers.  All these unknowns mean that premium projections are not possible and medium to large NSW employers are left in the dark.

Gilley maintains that confusion also reigns in the ranks of WorkCover, he says “I called WorkCover’s helpline on the day that the reforms were announced (18^th May 2015) to clarify what the changes all meant and was met with a wall of silence.  The best that they could tell me was that the full package would be released in the Insurance Premiums Order in late June”.

NSW has begun to turn its financial fortunes around thanks to good work done by the Government and employers more generally.  It’s a great pity that WorkCover is unable to get its act together in a timelier manner and release all of the details of the much heralded premium reforms.

May 6 2015

High risk industries such as agriculture, construction and fishing are likely to be hard hit by the new premium model currently under consideration by the NSW Government, which will be announced immediately following the State election in March.

In a move welcomed by SMEs (small to medium companies; those which pay $30,000 or less in basic tariff premium), the premium methodology was amended in 2013 such that much of the uncertainty of the previous system was removed.  The reforms were aimed at making premiums fairer, affordable and easier to understand.

Following the 2012 amendments to the way that workers compensation benefits are provided, the cost of the NSW workers compensation system has slumped.  This cost reduction has now prompted the Government to consider introducing changes to the premium model for medium and large business.

According to Finance Minister Dominic Perrottet, WorkCover is moving towards simpler, easier to understand premiums that provide certainty for medium and large business.

Industry sources are saying that the new premium model will be based on an industry rate which will be modified by an employer’s cost of claims, together with a scheme average cost of claims rate.

Simply put, a basic premium will be assessed depending on the employer’s industry and its wages.  This basic premium will then be modified using an adjusting factor which will weight the proportion of the basic premium which is added into the final premium.  The final premium will also include a claims costs component.

An employer’s paid claims costs (in the current model, estimated future costs are used as well) will be divided by its wages to assess the employer’s claims cost rate (ECCR).  This ECCR is then further modified by a scheme claims cost rate (denominator).  Therein lies the risk to the high risk industries, because the lower the denominator, the larger the quotient.

In the current model, industry claims cost rates (ICCR) are used as denominators; thus an employer in a particular industry is compared with other members of the industry.  For example the Bricklayers ICCR is currently 1.5567%.  If a scheme wide claims cost rate is 0.8877 and is used in place of the current ICCR then the quotient will be significantly higher.

The importance of the results of this calculation is that they are then applied to the basic premium and added into the final premium, potentially doubling it (we understand that there may be a system of capping introduced but have no confirmation of this).

Amongst other things this will no doubt jeopardise employment in high risk industries and perpetuate the cross subsidisation in the scheme flowing from the large employers to SMEs.

At the time of writing there has been no consultation between the Government and employer representatives; thus some of the information contained in this article may be incorrect.