NSW Premium Reforms for Medium to Large Employers

NSW WorkCover recently announced a raft of changes to the way premiums will in future be calculated for Medium to Large Employers (MLEs).  Commencing in 2015 (date is not confirmed but likely to be 30 June) the reforms will affect approximately 15,000 employers who employ 2.6 million NSW workers.

There are currently six main reforms on the table which include:

  • Risk rating policies annually. This is likely to involve assessing an employer’s premium using an algorithm similar to the existing arrangements but only at the commencement of a policy.  The algorithm is likely to use the past three years claims and wages as inputs but will be adjusted at the end of the policy, based on actual wages and NOT claims incurred.  This will end the cycle of uncertainty with premium billing typically three months or more after the end of the policy year. This reform will still require that employers assertively manage claims to keep premium charges under control.
  • A system of minimum and maximum premiums will be introduced. It is unclear at this time how this reform will operate.  It might be a simple percentage-based factor pegged to basic tariff premiums or it could be linked to experience premiums.
  • Making policies easier to understand and reducing administration. It is most unclear what this reform will be although there is a reference to more clarity around the link between a safe workplace and lower premiums.
  • An Employer Safety Incentive (ESI) will be provided upfront so employers can continue to invest in promoting safety in the workplace. An Employer Safety Reward (ESR) will be available to those employers who maintain a safe workplace with no claims for four consecutive years.  There are dangers with this sort of reform as those who may remember the Premium Discount Scheme will realise.  Market behaviour is likely to repress claims reporting if the incentive is generous.
  • A Return to Work Incentive (RTWI) for each individual claim will be introduced for employers who provide safe recovery at work. It is unclear how this reform will operate and whether it is applied for a claim’s lifetime or for a fixed period.
  • Introduction of a scheme performance adjustment. We suspect that this will be a percentage of one of the premium inputs, most likely to be payroll based.

Currently, WorkCover is making no comments about the scheme performance; although it is widely expected that the surplus reported at 30.6.2013 ($308.5 million) has very significantly blown out and by 2016 is likely to be in the order of $6 billion.

WorkCover has committed to consult with interested parties about the upcoming reforms and as soon as we know more we will be publishing further bulletins.

If you have any queries about this issue please feel free to contact us.

29 January 2015