Toward more choice in workplace insurance

Although the Government’s proposed reforms to workplace accident compensation will not create the level playing field that the insurance industry might like, they may offer employers the opportunity to develop arrangements which better reflect the particular circumstances of their business.
New Zealand Insurance
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Although the Government's proposed reforms to workplace accident compensation will not create the level playing field that the insurance industry might like, they may offer employers the opportunity to develop arrangements which better reflect the particular circumstances of their business.

This Brief Counsel summarises the main reform proposals. Submissions on the discussion document are due by 15 July 2011.

Proposals in brief

The key reform directions are to:

  • make the Accredited Employers Programme (AEP) more attractive and more flexible
  • develop options for risk-sharing outside the AEP, and
  • open workplace insurance to private sector competition from 1 October 2012.

Changes to the AEP

The AEP is an ACC-provided scheme which allows accredited employers (there are currently 136 of them) to accept some of the risk and responsibility of managing workplace claims in return for lower levies.

There are two AEP options.

  • The Partnership Discount Plan (PDP): this is available for periods of up to three years after which claims management and costs are handed back to ACC. Employers can reduce their exposure while in the AEP by buying stop loss cover from ACC.
  • Full Self Cover (FSC): the timeframe is between three and five years during which the employer assumes full financial responsibility for claims for the life of the claim. Ongoing claims at the expiry of the term are handed back to ACC at an actuarially determined price. This attracts a greater levy discount than PDP and stop loss cover is mandatory. In addition, employers can buy high cost claims cover to limit the cost of any individual event. The minimum level of cover is $250,000.

Proposals for change are to:

  • allow longer and shorter claims management periods - up to four years for PDP and up to ten for FSC, with the further option for FSC employers of retaining liability for the duration of a claim
  • provide more flexible risk containment options (e.g. allowing PDP employers to buy high cost claims cover and allowing all AEP employers to choose how much cover they want and to buy it from either ACC or from an approved private sector provider)
  • introduce experience rating into the AEP (it was introduced for other employers on 1 April 2011)
  • require the ACC to take over the management of a claim (while the employer continues to meet the cost). ACC can now refuse. Removing this discretion would allow employers to limit their involvement to those claims they feel comfortable handling, and
  • allow access to groups such as franchises or co-operatives.

Entry criteria to the AEP would remain high but the Government is proposing a number of changes to reduce the compliance burden. These include:

  • allowing employers to use a bank guarantee or other form of security to demonstrate financial robustness
  • reducing the frequency of audits for firms that consistently achieve a high standard of injury management and/or use other assurance mechanisms
  • making health and safety audits voluntary
  • amending the annual injury management audit so that:

    • standards are aligned with the requirements that ACC itself is required to meet (rather than more stringent, as now), and
    • the focus is on results rather than processes.

Options for risk-sharing outside the AEP

The main objective of these changes would be to provide risk-sharing opportunities to smaller employers who cannot meet the criteria for AEP accreditation.

Currently all employers must pay weekly compensation for the first week of any work-related injury. One proposal is for employers to accept the risk of this cost for periods of four, eight or 12 weeks or to a set dollar value in return for reduced levies. Other proposals are for an all costs excess or for a medical only excess (again for a set time or to a set limit).

All of the above changes, if proceeded with, would apply from 1 April 2012. The opening of workplace compensation to private providers would not take effect until 1 October 2012.

A competitive market?

The Government's plans for a competitive market are more cautious this time round than they were in 1999 when the Crown participated as an SOE (@work), which was independent of ACC.

This time ACC will continue to be a player, as a Crown agent. This will make life difficult for the private insurance companies, given that ACC does not have to turn a profit or pay tax or dividends.

On the other hand, the timing early in the electoral cycle should put these reforms on to a firmer foundation than in 1999 when they were instituted within months of a general election – and were immediately bulldozed by the incoming Labour Government.

Institutional arrangements

ACC will have to separate out its Work Account from its other business and will need to manage this account in a transparent way, with independent oversight and requirements for disclosure of some financial information.

ACC will set its own premiums, rather than having them set by Ministers through an inevitably political process.

ACC and private insurers will be required to provide data to a central pool so that they all have the same information on which to base risk assessment and pricing (with due protections for individual privacy). ACC will be limited to accident insurance.

A central register will be established to keep track of which private insurers are covering which workers.

Employers who have not actively contracted with a private insurer will continue to be covered by ACC and, in the absence of alternative arrangements, will revert to ACC when their private insurance contract expires.

Private insurers will be required to provide at least the minimum level of cover set out in the Accident Compensation Act 2001 and will (together with ACC) be under the oversight of a market regulator with the ability to impose stiff fines for any breach of the law.

A single claims lodgement unit will be set up to direct all initial claims from treatment providers to the relevant insurer.

Feedback has also been invited on whether the private insurance option should also be opened to the self-employed, for both work and non-work related injuries.

Next steps

The Government has a fairly crisp timeline in mind, with submissions due by 15 July and introduction of the necessary legislation before the House rises for Christmas this year. Almost every business in New Zealand stands to be affected by these reforms – insurance companies, members of the AEP and employers who are now on the standard ACC scheme.

We recommend you get involved or at least start thinking about which of the options on offer will best fit your circumstances.

For further information, please contact the lawyers featured as authors.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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