The Comcare Self Insurance Option
Self Insurers of South Australia
Mark Hurst
10 August 2007
This presentation to be read in conjunction with the authors’ paper
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
6. Licensing and
3. OH&S 4. OH&S 5. Workers
Regulation
Framework Enforcement Compensation
7. Impact on State Schemes
1. Productivity Commission Report
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
March 2004: PC report recommended:
• 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
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)
2. The Comcare Self Insurance Option
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
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
Assessment of Comcare Self-Ins Option
1. Productivity Commission Report
2. The Comcare Self Insurance Option
6. Licensing and
3. OH&S 4. OH&S 5. Workers Regulation
Framework Enforcement Compensation
7. Impact on State Schemes
Assessment of Comcare Self-Ins Option
3. OH&S
Framework
Assessment of Comcare Self-Ins Option
3. OH&S
Framework
?
Assessment of Comcare Self-Ins Option
3. OH&S
Framework Strict Liability
• 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 Conclusions
• 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
4. OH&S Proactive Interventions per
Enforcement 100,000 Employees
1,600
1,400
1,200
1,000
800
600
400
200
0
Cwth NSW * Vic Qld WA SA Tas
* No data Jurisdiction
Assessment of Comcare Self-Ins Option
4. OH&S Enforcement Notices per 100,000
Enforcement Employees
1,600
Prohibition
1,400
Improvement
1,200
1,000
800
600
400
200
0
Cwth NSW Vic Qld WA SA Tas
Jurisdiction
Assessment of Comcare Self-Ins Option
4. OH&S Legal Proceedings Commenced per
Enforcement 100,000 Employees
18
16
14
12
10
8
6
4
2
0
Cwth NSW Vic * Qld WA SA Tas
* Completed Jurisdiction
Assessment of Comcare Self-Ins Option
4. OH&S
Enforcement Conclusions
• 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
5. Workers
Compensation
• Single Set of Benefits
• Benefit Comparison
• Claim Cost Comparison
• Disputes
Assessment of Comcare Self-Ins Option
5. Workers
Compensation Single Set of Benefits
• 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 Benefit Comparison
• 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 Claim Cost 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 Standardised Premium Rates
3.5
3.0
Premium (% of wages)
2.5
2.0
1.5
1.0
0.5
0.0
Cwth NSW Vic Qld WA SA Tas NT
Jurisdiction
Assessment of Comcare Self-Ins Option
5. Workers
Compensation Premium Rates
2002-03 2003-04
Comcare Aust. Avg. Comcare Aust. Avg.
% % % %
Transport & Storage 1.05 3.57 1.17 3.48
Finance & Insurance 0.89 0.52 1.25 0.54
Property & Business Services 0.57 1.14 0.82 1.07
Assessment of Comcare Self-Ins Option
5. Workers
Claim Costs
Compensation
100% Award of $1,000
90%
Replacement Ratio (120 weeks)
Award of $1,000
80% plus $250 overtime
70%
60%
50%
40%
30%
20%
10%
0%
Cwth NSW Vic Qld WA SA Tas NT
Assessment of Comcare Self-Ins Option
5. Workers
Compensation Disputation Rates
18%
16%
14%
Disputation rate
12%
10%
8%
6%
4%
2%
0%
Cwth NSW Vic Qld WA SA Tas NT
Assessment of Comcare Self-Ins Option
5. Workers Proportion of Disputes
Compensation Resolved within 9 months
120%
Proportion of Disputes Resolved
100%
80%
60%
40%
20%
0%
Cwth NSW Vic Qld WA Tas
Assessment of Comcare Self-Ins Option
5. Workers
Compensation Conclusions
• 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
6. Licensing and
Regulation
• Tail provisions and exit fees
• Comcare self insurance licensing arrangements
• Compliance costs
7. Impact on State Schemes
“..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)
Scheme annual reports 2005/06 CPM-8: Expenses as % Claims
Premium Expenses Expense Rate 2004/05 2000/01
$m $m % Premium % Claims % Claims
NSW 2,925 1,004 34% 28% 18%
Victoria 1,668 392 24% 31% 19%
Queensland 861 157 18% 22% 23%
SA 544 80 15% 17% 19%
Comcare (Cwth) 190 24 12% 18% 17%
Average 27% 27% 19%
7. Impact on State Schemes
Premium Rate Impacts: An Illustration
• 10% of insured premium base moves to Comcare
• These employers have been providing 15% cross-
subsidy
• Fixed costs currently 10% of premium pool
7. Impact on State Schemes
Before
Large Other Total
Employers Employers Scheme
Wages ($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% -
Large Other
Overheads Overheads
0.9 9.1
Claims & CHE Claims & CHE
82.2
7.8
7. Impact on State Schemes
Other Employers
Wages ($m) 4,500
Required Premium 2.05%
After Previous Premium
Increase
2.00%
% of Insured Wages 0.05%
% of Premium 2.42%
7. Impact on State Schemes
Conclusions
• 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
Overall 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
The Comcare Self Insurance Option
Self Insurers of South Australia
Mark Hurst
10 August 2007
This presentation to be read in conjunction with the authors’ paper