NSW Workers Comp Update July 2016

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?