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 Presentation 1. Productivity Commission Report 2. The Comcare Self Insurance Option 7. Impact on State Schemes 3. OH&S Framework 5. Workers Compensation 6. Licensing and Regulation 4. OH&S Enforcement

Terms of Reference March 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 Comcare 2.establish an alternative national self insurance scheme 3.establish an alternative national underwritten scheme 1. Productivity Commission Report March 2004: PC report recommended:

Government Response For OH&S – Establish ASCC – OHS and SRC Legislation Amendment Act September Productivity Commission Report

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) 1. Productivity Commission Report

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 2. The Comcare Self Insurance Option

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 2. The Comcare Self Insurance Option

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 2. The Comcare Self Insurance Option

1. Productivity Commission Report 2. The Comcare Self Insurance Option 7. Impact on State Schemes 3. OH&S Framework 5. Workers Compensation 6. Licensing and Regulation 4. OH&S Enforcement Assessment of Comcare Self-Ins Option

3. OH&S Framework Assessment of Comcare Self-Ins Option

? 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 Assessment of Comcare Self-Ins Option 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 Assessment of Comcare Self-Ins Option 3. OH&S Framework Conclusions

Assessment of Comcare Self-Ins Option 4. OH&S Enforcement Proactive Interventions per 100,000 Employees

Assessment of Comcare Self-Ins Option 4. OH&S Enforcement Enforcement Notices per 100,000 Employees

Assessment of Comcare Self-Ins Option 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 Assessment of Comcare Self-Ins Option 4. OH&S Enforcement Conclusions

Single Set of Benefits Benefit Comparison Claim Cost Comparison Disputes Assessment of Comcare Self-Ins Option 5. Workers Compensation

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 Assessment of Comcare Self-Ins Option 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 Assessment of Comcare Self-Ins Option 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 Assessment of Comcare Self-Ins Option 5. Workers Compensation Benefit Comparison

Difficult to compare claim costs between states and Comcare due to different: Coverage Industry mix Benefits Assessment of Comcare Self-Ins Option 5. Workers Compensation Claim Cost Comparison

Assessment of Comcare Self-Ins Option 5. Workers Compensation Standardised Premium Rates

Assessment of Comcare Self-Ins Option 5. Workers Compensation Premium Rates

Assessment of Comcare Self-Ins Option 5. Workers Compensation Claim Costs

Assessment of Comcare Self-Ins Option 5. Workers Compensation Disputation Rates

Assessment of Comcare Self-Ins Option 5. Workers Compensation Proportion of Disputes Resolved within 9 months

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 Assessment of Comcare Self-Ins Option 5. Workers Compensation Conclusions

Tail provisions and exit fees Comcare self insurance licensing arrangements Compliance costs 6. Licensing and Regulation Assessment of Comcare Self-Ins Option

“..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 7. Impact on State Schemes

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 7. Impact on State Schemes Premium Rate Impacts: An Illustration

7. Impact on State Schemes Before Claims & CHE 82.2

7. Impact on State Schemes After

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 7. Impact on State Schemes 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