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 (18th 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