Workers Compensation “Insurance” – did you know it isn’t?BY STEVE CHAMPION
It’s probably just coincidence, but a number of our clients in recent months have raised their concerns about how their workers’ compensation insurance provider hasn’t handled a particular claim well, and this has cost the employer dearly, either in an employee’s ongoing lost time from work, or by causing an increase in the employer’s workers compensation premiums.
I think that is enough reason in itself to want to publicise that in most cases across Australia, employers don’t actually have ‘insurance’ as it is normally understood. Insurance in the normal sense is where you get to negotiate a premium with your insurer based on commercial terms and expected risks.
In states and territories such as NSW, Queensland, Victoria, and South Australia, what the insurance company is actually doing is administering a statutory scheme to compensate employees for workplace illnesses or injuries, on behalf of the government in that state or territory. The insurer then gets paid a fee by the scheme for providing those administrative services.
The employer in most cases has little formal recognition under workers’ compensation schemes, as the insurer is the entity actually recognised as having control or ‘ownership’ of the claim. Further, the insurer is remunerated in most cases not on what it can save by improving its performance in managing individual claims, but rather based on statutory formulas.
So Why Does it Matter?
For the employer, the key things to understand is that – depending on the size of your premiums - workers compensation premiums are generally a function of 3 factors –
1. Your industry - unless you decide to operate in a different industry, that is not going to be something you can influence;
2. Your wages bill – again, unless you decide to employ more or less staff, that isn’t something you necessarily have a lot of control over; and
3. Your claims experience – now that is something you can have at least an indirect role in, by helping your insurer do their job well, or by avoiding accidents and claims in the first place.
It’s that 3rd area I want to focus on. Your ‘claims experience’ is partly a function of actual claim costs, including payment for lost time and medical expenses.
Again, your claims experience is calculated according to certain statutory formulas and guidelines laid down by the government scheme. In NSW, for example, employers with a basic tariff premium below $10,000 or wages under $300,000 are not exposed to extra loadings for the actual cost of their employee claims.
However, for those employers who do not meet the above criteria, your premium is also a function of expected future costs as well as actual costs. So how much your insurer predicts a particular claim is expected to cost you as the employer (up to a total cost of $150,000 (per claim in NSW, including future claim costs such as legal expenses could significantly impact on your premium for the current year as well as the next 2 years.
To put this in another way, the cost of your workers’ compensation premiums could be significantly higher for each dollar paid out by your insurer, or expected to be paid out, to your injured workers – from perhaps $2 or $3 or even more, for each $1 paid out by the insurer. And that increase could affect your premiums for each of 3 years!
What Can You Do About This?
Our clear advice is to do all that you can to help your insurer deal efficiently with claims, for example, by early notification to them of claims so they can set their medical assessment and return to work processes into action as early as possible.
But our advice is also not to leave your claims totally to your insurer to follow-up on. You can save significant costs to your business by following up your insurer to ensure they are doing all they can to get an early resolution to your claims.
We also recommend for any employer subject to a ‘risk’ policy – where your premiums change based on your claims experience – where you have outstanding claims less than 3 years old, that you have regular claims review meetings with your insurer. We recommend you be assisted by advisors who are highly experienced in the workers’ compensation rules where your business operates.
ER Strategies’ can recommend experts in the field of workers’ compensation to our clients, whom we know and trust and who specialise in the workers compensation area. We have a history of working with our clients and those experts to achieve good outcomes in situations which might otherwise have been considered hopeless.
ER Strategies has a website at www.erstrategies.com.au, and can be contacted on 1300 55 66 37. They specialise in resolution and prevention of employee issues for employers.
Steve Champion, Director, ER Strategies