July 2023 Market Update – Workers Compensation

Workers’ compensation schemes continue to report substantial financial deficits which is putting significant strain on both industry and premium rates across Australia.

The challenges facing the workers’ compensation schemes are a rise in mental health claims, inadequate support and rehabilitation and complex claims processes. Coupled with this are recent legislative and regulatory changes causing significant disruption to the schemes and further contributing to deteriorating market conditions.

Below we discuss the current 2023/24 premium rates and key updates for Government workers’ compensation schemes in New South Wales, Victoria, South Australia, and Queensland.

As anticipated, The Nominal Insurer’s workers’ compensation scheme in NSW will have an 8 per cent average premium rate increase for FY2023-24, raising rates from 1.48 per cent to 1.6 per cent of wages. The Loss, Prevention and Recovery (LPR) premium model will also see an 8 per cent rise in claims adjustment factors this year which is now a 49 per cent increase since 2017/18.

It was reported in April 2023 by the Sydney Morning Herald that iCare had requested that premiums be increased by a minimum of 22 per cent this year due to the current financial deficit however, this has been reportedly capped at 8 per cent each year by the Work Health and Safety Minister, Sophie Cotsis.

While this provides slight upfront relief for employers in NSW, the increase is projected to be enforced by icare in FY24, FY25 and FY26 totalling a significant 24 per cent increase over the next 3 years.

Additionally, the Employer Safety Incentive (ESI) discount of 7.5 per cent will be replaced by Safe Employer Reward (SER), a performance-based reward, based on good claims performance over the previous three years, granted at policy renewal. When combined with the average 8 per cent industry rate increases, this will have a significant impact on employer’s premiums as icare estimates that 35 per cent of experienced rated employers will no longer receive a rebate, and that those employers represent 91 per cent of claims costs.

It has been a concerningly similar story in the Victorian scheme which was evidenced when a government spokesperson in March this year described the scheme as “fundamentally broken” saying “the scheme is no longer fit for purpose.

After reports that claim pay-outs exceeded premium revenue by $1.1B in 2022 and that gap is tipped to grow, WorkSafe Victoria are now changing the way workers’ compensation premium and claims will be managed.

In order to cover the growing claim costs, WorkSafe Victoria have confirmed that employers will be faced with an increase of 42 per cent across the scheme with the average rate going from 1.27 per cent to 1.8 per cent of remuneration.

Additionally, WorkSafe Victoria have also increased the existing 30 per cent annual premium capping which is currently being applied to employers to prevent significant increases each year based on claims performance. Premium capping will now increase to 75 per cent commencing from 30 June 2023. Further to this, individual claim capping has also increased by 2.8 per cent from $438,300 to $450,500. However, in arguably one of the biggest changes to the scheme, WorkSafe have advised that workers who experience stress and burnout will no longer be able to access weekly benefits from WorkCover. Instead, they will be eligible for provisional payments for 13 weeks to cover medical treatment. This is a change that has been specifically identified by WorkSafe as a strategy to combat the growing cost and impact of mental health claims which has been blamed for the current scheme performance.

During the 2023-24 fiscal year, WorkCover Queensland will experience a minor increase in its average net premium rate, rising to $1.29 per $100 of wages after applying discounts. This is a slight increase from the previous financial year’s rate of $1.23 (2022-23).

It’s important to note that this marks only the second time in over a decade that the premium rate has increased. Despite this modest rise, WorkCover Queensland maintains one of the lowest average premium rates and some of the best return-to-work rates in Australia.

The board of ReturnToWorkSA has announced an increase in the average premium rate for the 2023-24 fiscal year, moving it from 1.8 per cent to 1.85 per cent from the previous year. This adjustment is designed to both cover the estimated liability for new claims to be received in 2023-24 and to contribute to the scheme’s path towards complete funding.

The potential for such increases had been previously flagged while determining the average premium rate for 2022-23, owing to escalating liabilities and forthcoming costs associated with a significant legal case, which concluded in 2021.

Back in June 2022, when the Return to Work (Scheme Sustainability) Amendment Bill 2022 was introduced, the Government projected that the suggested legislative modifications would help minimise future increases within an average premium rate of 1.90 per cent. This prediction was realised with the passing of the Return to Work (Scheme Sustainability) Amendment Act 2022 on 6 July, 2022.

In response to the shock announcement in May 2023 that Catholic Church Insurance (CCI) will cease offering new or renewing existing workers compensation insurance policies from 29 June 2023, the State Insurance Regulatory Authority (SIRA) advised on 26 June 2023 that a new specialised insurance licence was granted to Trinity Insurance to provide workers’ compensation insurance for the Roman Catholic Church and its religious institutions.

This offers an alternative to CCI policy holders who can now choose to purchase a workers’ compensation policy from either icare or Trinity Insurance. SIRA is working with icare and Trinity Insurance to monitor the transition of all policy holders and will conduct full compliance activities when necessary.

It has been confirmed that CCI will continue to honour and manage existing claims for the foreseeable future, and any claims for injuries or illnesses that may occur before the policy expiry date.

As at July 2023, Trinity Insurance is only available for employers situated in NSW however, this may extend to other jurisdictions in the future.

If you would like additional information regarding the national workers compensation schemes or to discuss how you can reduce your workers’ compensation premium, please contact Andrew Jamieson and the Bellrock Benefits team.

For more in depth market updates by product class, profession and industry, please see our individual reports below: