How system design impacts the funding mix for people injured

in accidents

Raewin Davies & Alex Gould

2

Outline

• Background

• Approach

• Assumption examples

• Model results

• Improvements

• Applications

Cost Transfers

1. Between jurisdictions

2. From scheme to individual

The Premise

A jurisdiction with generous scheme benefits may subsidise other jurisdictions – it pays for its own higher scheme benefits through premiums and pays taxes which may be used to fund

jurisdictions with less generous benefits.

Differences between schemes

Access to central safety net

Potential cost transfers + =

5

Case study: long term weekly income levels

0

500

1,000

1,500

2,000

2,500

Long term weekly income by jurisdiction - low income couple

Weekly benefits

Govt Benefits

Spouse Income 0

500

1,000

1,500

2,000

2,500

Long term weekly income by jurisdiction - high income couple

Weekly benefits

Govt Benefits

Spouse Income

6

Overview of model approach

?

But wait… there’s more ...

7

Example of individual assumptions

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

High Income Family - Base Case

Spouse Income Pre Injury Income Weekly Benefits Govt Benefits

• White space represents cost borne by household • Purple space represents cost borne by government

8

Jurisdiction

[i] De Ravin, J., Fowlds, M., 2010, Inflation Risk in General Insurance. 17th General Insurance Seminar.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

High Income Family - Base Case

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

High Income Family - Lump Sum

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

High Income Family - Pre injury earnings

Spouse Income Pre Injury Income Weekly Benefits Govt Benefits Lump sum Income

9

Household structure

[i] De Ravin, J., Fowlds, M., 2010, Inflation Risk in General Insurance. 17th General Insurance Seminar.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

Family - Base Case

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

Couple - Base Case

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

Single Parent - Base Case

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

Single - Base Case

Spouse Income Pre Injury Income Weekly Benefits Govt Benefits

Should benefit levels be based on household income? Are single people unduly penalised? Should the cost of children be considered?

10

Cohort – mix of claims

39%

37%

6%

18%

Household type of individuals (%)

Couple with children

Couple without children

Single with children

Single without children

11

Pre injury income level

[i] De Ravin, J., Fowlds, M., 2010, Inflation Risk in General Insurance. 17th General Insurance Seminar.

Spouse Income Pre Injury Income Weekly Benefits Govt Benefits

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

High Income Family - Base Case

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wee

kly

inco

me

Weeks post injury

Low Income Family - Base Case

Should benefit levels relate to pre-injury earnings? Should the spouses income level affect benefit payments?

12

Cohort – number of claims

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pre -Injury

0 26 52 104 160

Prop

orti

on o

f inj

ured

coh

ort

Weeks post injury

Unemployed

RTW

Pre-injury / Scheme

Number of claimants in Base case jurisdiction

Should data on claimant

outcomes be publically available?

13

Results

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Pre-injury

0 26 52 104 160

Ave

rage

wee

kly

paym

ents

per

hou

seho

ld

Weeks post injury

Unemployment Govt benefits

RTW govt benefits

On scheme govt benefits

Scheme

RTW

Pre-injury

Spouse

14

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

-16 -8 0 8 16 24 32 40 48 56 64 72 80 88 96 104 112 120 128 136 144 152 160

Base Case

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

-16 -8 0 8 16 24 32 40 48 56 64 72 80 88 96 104 112 120 128 136 144 152 160

Lump Sum

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

-16 -8 0 8 16 24 32 40 48 56 64 72 80 88 96 104 112 120 128 136 144 152 160

Slower RTW

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

-16 -8 0 8 16 24 32 40 48 56 64 72 80 88 96 104 112 120 128 136 144 152 160

Pre - injury Earnings

15

20

25

30

35

40

45

0 20 40 60 80 100 120 140 160

$ w

eekl

y in

com

e

Weeks Post Injury

Average government spend per injured worker

Base Case Pre injury Earnings Lump Sum

The “purple space”

16

0

50

100

150

200

250

300

350

400

450

0 20 40 60 80 100 120 140 160

$ pe

r inj

ured

wor

ker

Weeks post injury

Average cost to individual

Base Case Pre injury Earnings Lump Sum

The “white space”

17

What next – a better model?

• Replace fictional jurisdictions with actual ones

• More granular income distribution

• More realistic spousal income

• Recognition of household cost structures

• More focus on gender

• Scheme-specific demographics

18

What next – where to use results?

• Should individuals bear different costs in different jurisdictions?

• Is it fair that differences in scheme design can impact average Government funding per injured person?

• How do you balance incentivising return to work and the cost to the injured individual?

• Should the spouse’s income and number of dependant children influence the level of benefits received?

19

Questions

• Should more data on claimant outcomes be made publically available?

• Is this an actuarial issue, or is it economics / politics / health / welfare

• Is harmonisation or centralisation across states desirable?