The NSW government and WorkCover are implementing a range of improvements to the NSW workers compensation premium system.

The changes aim to make the system fairer and provide businesses with greater incentives to improve occupational health and safety, injury management and return to work opportunities.

In keeping with WorkCover’s commitment to ensure key employer and union groups are informed about the reforms, we have attached some information that explains the changes occurring to the premium system from 31 December 2005.

Further details are below:

IMPROVING THE NSW PREMIUM SYSTEM

The NSW Government is committed to working to deliver reductions in workers compensation premiums and creating a Scheme that works better for employers and employees.

The reforms aim to make the system simpler and fairer and provide business with greater incentives to improve occupational health and safety, injury management and return to work opportunities. The next phase of the improvement program will commence on 31 December 2005, Including: a five per cent reduction in all premium rates, a reduction in late payment fees and further changes to make the premium system fairer for business.

These changes will take effect for all policies commencing on or after 31 December 2005

Five per cent reduction in premium rates

In November 2005, NSW Premier Morris Iemma announced a five per cent reduction in workers compensation premium rates across all WorkCover Industry Classifications. For example: a medium employer in a regional area of NSW who is experience adjusted for claims and operating a supermarket with wages of $842,500 will have a final premium of $43,033 as a result of the five per cent rate reduction. Before the rate reduction, this employer’s premium would have been $44,970. A large Sydney-based employer who is experience adjusted for claims and engaged in clothing manufacturing and retailing with total wages of $17m will receive a final premium decrease from $475,700 to $451,560, as a result of the reduction.

Cuts to late payment fees

The late payment fee rate has been reduced from 1.2 to 1.074 per cent per month (compounded monthly). WorkCover will review the rate of late payment fees annually and publish the rate in the Insurance Premiums Order to ensure consistency with current market penalty rates is maintained.

Fairer premiums for business

The Premium Review reforms are the result of 18 months consultation with industry and were announced by the Minister for Commerce, John Della Bosca in June 2005. The first phase of the reforms started on 30 June 2005, including: increase of the experience adjustment threshold from a basic tariff premium greater than $3,000 to greater than $10,000 and eligibility of NSW employers for retrospective premium adjustments for costs of fraudulent claims successfully prosecuted after 1 January 2000.

Impacts of the reforms to commence from 31 December 2005 include: fewer employers will be financially affected by claims, greater protection from large premium increases, introduction of a simpler, fairer premium calculation, financial incentives to employers to reduce the cost of claims.

Protection from large premium increases Employers will now be categorised as either small (92 per cent of NSW businesses), medium (7.5 per cent) or large (0.5 per cent). This means that a workers compensation claim will not affect the premium of 92 per cent of businesses.

Small employers: Have a basic tariff premium of $10,000 or less or annual wages that total $300,000 or less.

Medium employers: Have a basic tariff premium of more than $10,000 and equal to or less than $500,000 and annual wages of more than $300,000. Large employers: Have a basic tariff premium of more than $500,000.

If you are experience adjusted, caps will be applied to premiums as outlined below:

Basic tariff premium less than $50,000: Total premium cannot exceed 1.5 times the basic tariff premium

Basic tariff premium equal to or greater than $50,000 and less than $150,000: Total premium cannot exceed 2 times the basic tariff premium Basic tariff premium equal to or greater than $150,000 and less than $300,000: Premium cannot exceed 2.5 times the basic tariff premium

A simpler, fairer premium calculation

The current experience formula will be replaced by a simpler, fairer formula. F factors will no longer be used in the experience premium calculation. The new formula will be based on an employer’s claims experience relative to their industry’s (WIC’s) performance. New medium and large employers who enter the Scheme after 31 December 2005 will be experience rated from their first year in the Scheme.

Financial incentives for employers to reduce the cost of claims

To provide an incentive for early management of injuries, the claims excess will be waived for employers who report injuries within five days of becoming aware of the injury. The claims excess payment will now be the equivalent of one week of the injured worker’s weekly compensation. An equivalent of one week of the injured worker’s compensation will be deducted from the cost of claims included in the experience premium calculation.

Small employers will no longer have the option to buy out the claims excess by paying a surcharge on their premium.

Simpler administration Scheme agents will start implementing changes to premium forms to clearly outline how your premiums are calculated and the effect the claim has had on your premium.

Instalment options

The reforms also allow you to pay workers compensation premiums by monthly or quarterly instalments to enable you to better manage your cashflow. All Scheme Agents must provide the new instalment options by 30 June 2007, however instalments may be made available earlier where an Agent is able to offer this option.

Future improvements to the premium system

Further changes to the premium system, identified by the Premium Review, are planned to take place over the next two years. The Government has committed to further reduce premiums as soon as the Scheme’s financial performance allows.

Grouping of related employers From 30 June 2006, an employer who is part of a group that has combined wages of more than $600,000 will be grouped for the purposes of premium calculation. A common experience adjustment factor (S factor) will be used to calculate the premium for all group policies. Members of a group can hold individual policies, however it is required that all group policies be with the same Scheme Agent and have a common renewal date.

Greater accuracy of claims estimation

From 31 December 2007, manual claims estimations will be replace by a statistical case estimation model to provide greater accuracy and consistency across the Scheme for the estimation of claims.

Working with industry The NSW Government and WorkCover will continue to work in partnership with industry to improve the workers compensation premium system. Issues for consultation include: various aspects of the premium system as they affect large employers, the development of one or more industry-specific pilots to trial the effects of excluding the costs of certain gradual onset injury or illness claims from premium calculations, the development of alternative methods of calculating workers compensation premiums for employers in the labour hire industry.

Further details about changes to the NSW workers compensation premium system can be found on our website www.workcover.nsw.gov.au or by calling WorkCover on 13 10 50 or by contacting your Scheme Agent, broker or accountant.