the comcare self insurance option this presentation to be read in conjunction with the authors’...

The Comcare Self Insurance Option

This presentation to be read in conjunction with the authors’ paper

Self Insurers of South Australia

Mark Hurst

10 August 2007

Introduction• The Australian Government is facilitating access for

companies to self insure under Comcare

• This raises a number of questions, including:– Is this a sensible and viable option?– What are the implications for state schemes?

Outline of Presentation1. Productivity Commission Report

2. The Comcare Self Insurance Option

7. Impact on State Schemes

3. OH&S Framework

5. Workers Compensation

6. Licensing and Regulation4. OH&S

Enforcement

Terms of ReferenceMarch 2003: Australian Government asked Productivity Commission:

“to assess possible models for establishing national frameworks for workers’ compensation and OH&S arrangements”

1. Productivity Commission Report

• For OH&S - establish national uniformity in OH&S regulation

• For workers comp - alternative national scheme operating alongside state schemes via 3 steps:1. encourage self insurance under Comcare2. establish an alternative national self insurance

scheme3. establish an alternative national underwritten

scheme


March 2004: PC report recommended:

Government Response• For OH&S

– Establish ASCC– OHS and SRC Legislation Amendment Act

September 2006


Government Response• For workers comp

– Accepted Step 1 of progressive national scheme, i.e. encourage self insurance under Comcare

– Rejected Step 2 (alternative national self insurance) and Step 3 (alternative national underwritten scheme)


Eligibility• Competition test

– John Holland eligibility implies broad interpretation of competition

• Comcare licence– Financial and prudential requirements– Capacity to manage claims– Will not harm employees’ interests

• Currently 18 self insurers – 5 others eligible but not yet licensed– Chubb & NAB joined during 2007

• Optus case– High Court confirmed Commonwealth power to allow

companies into Comcare


Impact of Comcare self insurance• No longer have to satisfy state scheme legislation• OHS and SRC Legislation Amendment Act

– Passed in September 2006– Single OH&S framework for all employees

• SRC ACT– One set of workers compensation benefits– Single dispute resolution system

• Avoid admin and compliance costs of operating under up to 8 sets of OH&S and workers compensation regulations


Survey of National Employers• Major influences in deciding whether or not to move

to Comcare– Workers comp financial implications (100%)– Workers comp regulation / compliance (100%)– OH&S financial implications (83%)– OH&S regulation / compliance (100%)– Strict OH&S liability (50%)

• Uniform legislation and regulations– Consistently emphasised





3. OH&S Framework


6. Licensing and Regulation4. OH&S

Enforcement

Assessment of Comcare Self-Ins Option

3. OH&S Framework


?


3. OH&S Framework

• In NSW, if a workplace injury occurs onus of proof on employer to show they had done everything practicable to establish a safe workplace

• Other jurisdictions (including Comcare) onus of proof on regulator to show that the employer had not done everything practicable

• In survey, cited as a significant factor by employers for considering a move to Comcare


3. OH&S Framework Strict Liability

• OH&S frameworks are broadly similar across states but myriad minor differences => Significant advantage for employers in working

under single regulatory framework

• Escaping NSW strict liability provisions may be an important factor


3. OH&S Framework Conclusions

0

200

400

600

800

1,000

1,200

1,400

1,600

Cwth NSW * Vic Qld WA SA Tas

Jurisdiction* No data


4. OH&S Enforcement

Proactive Interventions per 100,000 Employees

0

200

400

600

800

1,000

1,200

1,400

1,600

Cwth NSW Vic Qld WA SA Tas

Jurisdiction

Prohibition

Improvement


4. OH&S Enforcement

Enforcement Notices per 100,000 Employees

0

2

4

6

8

10

12

14

16

18

Cwth NSW Vic * Qld WA SA Tas

Jurisdiction* Completed


4. OH&S Enforcement

Legal Proceedings Commenced per 100,000 Employees

• OH&S frameworks broadly similar across jurisdictions - NSW strict liability exception

• Greatest differences in OH&S comes through approach to enforcement:– Comcare currently “light touch”– May need to change approach & beef up resources

to operate in new workplaces


4. OH&S Enforcement Conclusions

• Single Set of Benefits• Benefit Comparison• Claim Cost Comparison• Disputes



• Advantages– Uniform set of benefits and rules across all

employees– Equality across staff– Simpler systems and processes – Potential to standardise and perhaps centralise

claims management• Identified as a key attraction of moving to Comcare


5. Workers Compensation Single Set of Benefits

• Weekly benefits generally more generous– 100% for 45 weeks– long-term entitlement

• Limited redemptions• Limited access to common law• Lump sums generally lower than states


5. Workers Compensation Benefit Comparison

• SRC Amendment Act (passed 27 March 2007)– Remove non-work related journey claims– Limit coverage of stress claims– Broaden suitable employment test for establishing

potential earnings for long-term partial claims• Will reduce cost of Comcare benefits• Comcare generally more costly because of weekly

benefit design (around 10%)– Recent amendments will reduce the difference


5. Workers Compensation Benefit Comparison

Difficult to compare claim costs between states and Comcare due to different:

Coverage

Industry mix

Benefits


5. Workers Compensation Claim Cost Comparison


5. Workers Compensation Standardised Premium Rates

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Cwth NSW Vic Qld WA SA Tas NT

Jurisdiction

Pre

miu

m (

% o

f w

ages

)

Comcare Aust. Avg. Comcare Aust. Avg.% % % %

Transport & Storage 1.05 3.57 1.17 3.48Finance & Insurance 0.89 0.52 1.25 0.54Property & Business Services 0.57 1.14 0.82 1.07

2002-03 2003-04


5. Workers Compensation Premium Rates



Claim Costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Rep

lace

me

nt

Rat

io (

120

wee

ks)

Award of $1,000

Award of $1,000plus $250 overtime


5. Workers Compensation Disputation Rates

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Dis

pu

tati

on

rat

e



Proportion of Disputes Resolved within 9 months

0%

20%

40%

60%

80%

100%

120%

Cwth NSW Vic Qld WA Tas

Pro

po

rtio

n o

f D

isp

ute

s R

eso

lved

• Operational and practical benefits for employers from a single framework

• Comcare generally more costly because of weekly benefit design– recent amendments will reduce the difference

• Dispute resolution framework is another factor driving different claim outcomes


5. Workers Compensation Conclusions

• Tail provisions and exit fees

• Comcare self insurance licensing arrangements

• Compliance costs

6. Licensing and Regulation


“..a substantial exit of employers from any scheme will detrimentally impact the financial viability of the scheme they have left” (WorkCover Queensland submission to Productivity Commission)

• Scale diseconomies• Premium rate impacts• State self insurance viability


Premium Expenses Expense Rate 2004/05 2000/01

$m $m % Premium % Claims % ClaimsNSW 2,925 1,004 34% 28% 18%Victoria 1,668 392 24% 31% 19%Queensland 861 157 18% 22% 23%SA 544 80 15% 17% 19%Comcare (Cwth) 190 24 12% 18% 17%Average 27% 27% 19%

Scheme annual reports 2005/06 CPM-8: Expenses as % Claims


Scheme Expense Rates (government underwritten)

• 10% of insured premium base moves to Comcare

• These employers have been providing 15% cross-subsidy

• Fixed costs currently 10% of premium pool


Premium Rate Impacts: An Illustration


BeforeLarge

EmployersOther

EmployersTotal

SchemeWages ($m) 500 4,500 5,000

Required Premium 1.74% 2.03% 2.00%Actual Premium 2.00% 2.00% 2.00%Cross-Subsidy 15.0% -1.4% -

LargeOverheads

0.9

Claims & CHE7.8

OtherOverheads

9.1

Claims & CHE82.2

Large

Claims 7.8

Other

Claims 82.2

Expenses 10.0

Large Other

Overheads retained by Scheme

Claims & CHE7.8

Claims & CHE82.2

Overheads10.0


After

Other EmployersWages ($m) 4,500

Required Premium 2.05%Previous Premium 2.00%Increase

% of Insured Wages 0.05%% of Premium 2.42%

• Scale diseconomies: not a serious problem

• Premium impacts: shouldn’t be a problem, but depends on:– current cross-subsidies in premium design, and – whether eligibility criteria relaxed

• Self insurance: possible loss of critical mass in smaller jurisdictions


Conclusions

• The Comcare self insurance option– Significant operational advantages for an employer

from adopting uniform frameworks for OH&S, workers’ comp benefits and self insurance regulation

– Comcare currently a “light touch” OH&S regulator – may change

– Workers’ comp may be more costly (although recent amendments will reduce difference)

– Employer also needs to consider exit levies that may be payable and impact on employees

• State scheme impact – Any impact on State schemes is mainly self imposed

Overall Conclusions

The Comcare Self Insurance Option

This presentation to be read in conjunction with the authors’ paper

Self Insurers of South Australia

Mark Hurst

10 August 2007

the comcare self insurance option this presentation to be read in conjunction with the authors’...

Documents

comcare workers

enforcement slide

productivity commission

progressive national

national frameworks

national uniformity

set of workers compensation

state scheme legislation