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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
1. Productivity Commission Report
March 2004: PC report recommended:
Government Response• For OH&S
– Establish ASCC– OHS and SRC Legislation Amendment Act
September 2006
1. 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 Regulation4. OH&S
Enforcement
Assessment of Comcare Self-Ins Option
3. OH&S Framework
Assessment of Comcare Self-Ins Option
?
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
0
200
400
600
800
1,000
1,200
1,400
1,600
Cwth NSW * Vic Qld WA SA Tas
Jurisdiction* No data
Assessment of Comcare Self-Ins Option
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
Assessment of Comcare Self-Ins Option
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
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
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
Assessment of Comcare Self-Ins Option
5. Workers Compensation Premium Rates
Assessment of Comcare Self-Ins Option
5. Workers Compensation
Claim Costs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cwth NSW Vic Qld WA SA Tas NT
Rep
lace
me
nt
Rat
io (
120
wee
ks)
Award of $1,000
Award of $1,000plus $250 overtime
Assessment of Comcare Self-Ins Option
5. Workers Compensation Disputation Rates
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Cwth NSW Vic Qld WA SA Tas NT
Dis
pu
tati
on
rat
e
Assessment of Comcare Self-Ins Option
5. Workers Compensation
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
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
Premium Expenses Expense Rate 2004/05 2000/01
$m $m % Premium % Claims % ClaimsNSW 2,925 1,004 34% 28% 18%Victoria 1,668 392 24% 31% 19%Queensland 861 157 18% 22% 23%SA 544 80 15% 17% 19%Comcare (Cwth) 190 24 12% 18% 17%Average 27% 27% 19%
Scheme annual reports 2005/06 CPM-8: Expenses as % Claims
7. Impact on State Schemes
Scheme Expense Rates (government underwritten)
• 10% of insured premium base moves to Comcare
• These employers have been providing 15% cross-subsidy
• Fixed costs currently 10% of premium pool
7. Impact on State Schemes
Premium Rate Impacts: An Illustration
7. Impact on State Schemes
BeforeLarge
EmployersOther
EmployersTotal
SchemeWages ($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
7. Impact on State Schemes
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
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