Considering Self Insurance under Comcare

The Australian Federal Government has announced significant reform as part of its deregulation agenda, which will allow more national employers to be covered by the Comcare scheme

Background

In December 2013, the Government lifted the moratorium on private corporations seeking to become self-insurers under Comcare, the Commonwealth workers’ compensation scheme which enables eligible participants to operate under one set of national worker’s compensation and work health and safety arrangements.

Newly Announced Changes

On 19 March 2014, Prime Minister Tony Abbott announced a move by the Government to repeal over 10,000 unnecessary and counter-productive pieces of legislation and regulations, in a bid to reduce red tape across the economy and improve Australia’s competitiveness.

Included in the reforms was the Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 (the Bill), designed to expand the eligibility criteria of the Comcare scheme, thus giving all national companies the opportunity to be self-insured.

If the Bill is passed, it is likely that:

  • the scheme process will be streamlined so applications go directly to the Safety, Rehabilitation and Compensation Commission (the Commission), removing the need for initial eligibility approval to be granted by the Minister for Employment.
  • the existing competition test will be replaced by a ‘national employer’ test, allowing “corporations currently required to meet workers’ compensation obligations under two or more workers’ compensation laws of a State or Territory, to apply to the Commission to join the Comcare scheme.”
  • the Commission will be able to grant group licences where appropriate.
  • the coverage provisions of the federal Work Health and Safety Act 2011 will be extended to corporations that obtain a licence to self-insure under Comcare, so that Comcare is their WHS regulator.
  • Access to workers’ compensation will be excluded where “injuries occur during recess breaks away from an employer’s premises” or where “a person engages in serious and wilful misconduct.”

Why Self-Insure?

The benefits for employers from electing to self-insure their workers compensation program will be both financial and administrative.  However the decision to self-insure is fundamentally about the level of control the employer wants to have over their workers compensation program.

Does a business outsource the claims function to a third party and pay a premium, or do they take control of claims and safety outcomes and retain the premium.

Financial Considerations

Large employers insured under the Government run workers compensation schemes in NSW, Victoria, Queensland and South Australia, will pay a premium that is weighted heavily to claim costs – often paying $3 dollars or more in premium for each dollar in claims cost.  The Government Agencies responsible for these Schemes see this as both, providing an incentive for large employers to improve injury management and safety, and a means of protecting smaller employers from the financial impact of workers compensation claims.

This premium methodology also creates a motivation for large employers to investigate self-insurance.

In the Insurer run workers compensation schemes in Western Australia, ACT, Northern Territory and Tasmania, large employers are more likely to pay a premium that directly reflects their claim costs, however they will pay a margin to cover the insurer’s costs and return on capital.

Typically workers compensation insurers are part of a broader insurance business.  The Big 4 workers compensation insurers in Australia exemplify this;

  • Allianz Workers Compensation – a subsidiary of the global insurer Allianz based in Germany.
  • CGU Workers Compensation – a member of the ASX listed IAG (Insurance Australia Group).
  • GIO Workers Compensation – a member of the Suncorp Group of Companies.
  • QBE Workers Compensation – a subsidiary of QBE, a publically listed insurance business.

While the workers compensation arms of these business may be a relatively small part of the group, if the group decides that the business needs to increase gross written premium by 10%, that decision impacts the workers compensation business and its policy holders in the same way that it does any other line of insurance.

Administrative Considerations

Whether a workers compensation scheme is led by a Government Authority or an Insurer, the employer is only one of the stakeholders of that scheme. An employer who self-insures is the owner of their workers compensation costs.  This distinction means that when an insured employer says, I’d like to challenge our liability for this claim and then rely on their insurer to support them; the self-insured employer says we are challenging our liability of this claim.

Operating in the Sate based Schemes – whether as a policy holder or a self-insurer – requires compliance with a set of Safety Regulations and Employer insurance obligations that are distinct to each State and Territory.  A key benefit of self-insurance under the Comcare Scheme, over self-insurance in one or more State workers compensation system, is the opportunity to have a single workers compensation claims management model, and a single set of work health and safety laws.

The benefits to an employer of a single set of Safety regulations and Employer insurance obligations should not be underestimated, for example:

  • Staff training packages do not need to be tailored to different State based Legislation.
  • Safety compliance is consistent across each of your business locations.
  • Your injury management processes can be streamlined.
  • Your employees across the country are covered by the same systems and procedures.

A further advantage in the claims process is the direct relationship with claims service providers.

The A to Z of Self-Insurance

The process of moving from a traditional insurance model to a self-insurance model, is a process of analysis which moves across each criteria and leads to a completed licence application.

delf-insurance

To discuss your organisation’s suitability for self-insurance please contact Tony Byrnes at byrnestz@willis.com.