Reforming the NSW Workers Compensation System Rob Thomson General Manager, Workers Compensation WorkCover NSW
Outline NSW System overview NSW Scheme performance Reforming the NSW System Recent initiatives The future
NSW Workers Compensation System Treasury Managed Fund 12% Self Insurers 11% Specialised Insurers 3% NSW Workers Compensation Schem e 74% * 370,000 employers * $101 billion in wages * $2.5 billion in annual premiums * Around 100,000 workers compensation claims annually
Underlying System Principles Improve health outcomes, assist recovery and safe return to work while providing financial support System principles strengthened by 2001 reforms, prior to which there was a more prominent focus on monetary settlement
Ten Point Plan to Guide Reform Focus on injury management and early return to work Review of dispute resolution processes and structures Implementation of medical treatment protocols Introduction of market incentives and performance benchmarks Provision of timely and accurate information to Scheme participants Control professional fees and ensure value for money Removal of cross-subsidies between employers Strategies to retire Scheme deficit Use of industry based schemes and self-insurance Strategies to target employer compliance
NSW Scheme Performance $Millions 500 0-500 -1,000-1,500-2,000-2,500-3,000-3,500 NSW Scheme Surplus Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 110% 100% 90% 80% 70% 60% 50% Funding Ratio Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 As at 30 June 2006
NSW Scheme Performance Collected and Breakeven Premium Rates
NSW Scheme Experience Ultimate Claim Frequency Continuance Rates 13 w eeks 26 w eeks 52 w eeks 108 w eeks 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Continuance Rates 14% 12% 10% 8% 6% 4% 2% 0% 2001 reforms 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Accident Year Month Claim Reported Record low claim rates Continuing improvement in RTW post 2001 reforms
NSW Scheme: Funding Position $ millions Valuation date Dec-05 Jun-06 Risk Margin 1% 3% Probability of adequacy 55% 60% Investments 8,537 9,444 Claims recoveries 471 458 Other assets 1,091 804 Total Assets 10,099 10,707 Gross outstanding claims (including CHEs) 9,508 8,882 Unearned premium provision 1,206 634 Unexpired risk provision 0 0 Other Liabilities 547 1,105 Total liabilities 11,261 10,621 Surplus/(Deficit) -1,162 85 Funding ratio 89.7% 100.8% Net outstanding claims (central estimate) 8,948 8,179 Risk margin $m 89 245
2001 legislative reforms Transition to active management of Agents Contracts and outcome based remuneration Agent education and awareness Improved Case Management Tail strategies Dispute process Improvement Drivers PAST WorkCover monitors and reports on Scheme performance Regulate Scheme Insurers, health providers, employers, etc Monitor/manage Scheme performance through insurer remuneration arrangements Monitor performance of Scheme assets PRESENT WorkCover accountable for Scheme performance Regulate Scheme Nominal Insurer, health providers, employers etc Actively manage agent performance through commercial contracts Actively manage fund manager performance through contracts ACTIVE MANAGEMENT
Recent Reform Stabilisation of the Scheme has allowed for premium reductions and benefit increases: 20% premium reduction since November 2005 Apprentice Incentive Scheme: apprentice wages not used to assess premium 15% increase: lump sum for permanent impairment of the spine 10% increase: lump sum for permanent impairment (non-spinal injury)
Recent Reform: Premium Simpler, fairer premium formula Enhanced protection: small and medium employers only the largest 8% of employers experience adjusted new caps on maximum premium increases Experience rating (medium and large employers) new, simpler, two tier experience formula experience rating assessed at the start, and again at the end, of the policy year new employers to undergo experience adjustment from first policy year
Recent Reform: Premium Claim excess incentives claim excess changed from $500 to one week of injured worker s weekly compensation no option for small employers to buy out excess excess waived if claim reported within five days Grouping of related employers related employers with combined wages over $600,000 will be grouped common sizing factor for all group members
In 2000: Dispute Resolution: 2000 NSW had the highest level of disputed claims in Australia 45% of major claims were referred for conciliation Only 10% of disputes were settled through conciliation over 20,000 claims lodged with Compensation Court and of these, less than 10% proceeded to judgement almost 50% of disputes arose from delays in decisions by insurers
Dispute Resolution: 2006 In 2006, the number of new disputes have fallen significantly 20000 18000 16000 14000 12000 10000 8000 6000 4000 2005 Legislative Reforms 2000 0 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Mar-06 Jun-06 Sep-06 Dec-06
Dispute Resolution: 2006 Streamlining and reductions in disputation contributed to legal cost reductions Legal Payments (Inflated to June 06 Dollars) ($'000) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Payment Quarter
Reforming Dispute Resolution: A Three Pronged Approach Preventing disputes provisional liability Claims Assistance Service Resolving disputes Workers Compensation Commission Fair benefits for all access to commutations and Common Law permanent impairment assessment guides
Recent Reform: Dispute Resolution Refinement Provided clearer guidelines for all parties Ensuring up front exchange of information between parties Accepting only genuine disputes at the Workers Compensation Commission Streamlined Workers Compensation Commission procedures Appropriate remuneration for legal representatives
Recent Reform: Outcome Based Remuneration Shift from process to outcome focus in 2004/05 Remuneration on the basis of contribution to identified Scheme outcomes Broad key outcome measures return to work financial outcomes
Recent Reform: Harmonisation Committed to upholding existing safety standards, while streamlining workers compensation arrangements Streamlining: tax agent no longer required to certify wage declarations prior to purchasing a workers compensation policy workers compensation certificate of currency valid for 12 months, instead of four months Cross border legislation enacted Additional initiatives in development common claim forms premium payments by instalment
The Future System streamlining and harmonisation Review of statutory benefits Ongoing refinement of dispute process Revised financial strategies: Scheme in surplus Premium Review large employers: burning cost model labour hire industry classification Self and Specialised Insurer focus