Changes to the WorkCover SA levy system will help push down the scheme’s costs sufficiently to allow it eventually to reduce the average levy rate which remains the highest in the nation, the organisation expects.
WorkCover SA levy system to push down scheme’s costs
From July 1, WorkCover introduced its new Experience Rating System which calculates employer levies, which it now will call “premiums”, based on their size, performance against their industry’s risk and individual claims experience.
The new regimen will target medium and large employers, which make up the least of businesses in the scheme yet, because of their workforce size, lodge most claims.
WorkCoverSA chief executive Rob Thomson said the change was “one piece of the puzzle” for improving the scheme’s financial performance. It also needed better outcomes from its claims agents (for which winning tenders will be announced in coming months).
“Hopefully, this change, together with other changes that have been made, will actually result in the levy rate being reduced at some point. I would hope that’s within the next couple of years,” he said.
The WorkCover board announced in March the average levy rate paid by employers would remain unchanged, at 2.75 per cent of payroll, for 2012-13. It was cut from 3 per cent in 2010-11, where it had been since 2003-04. That roughly was double the average levy rate paid interstate, with 1.66 per cent in NSW, 1.34 in Victoria, 1.30 for Queensland and 1.49 in WA.
Mr Thomson said the scheme’s anticipated long-term returns remained low. This may continue to affect the level of its liability.
“The scheme is still getting appropriate and good (immediate) investment returns; the impact that we’re suffering is the (bottomed out) yield curve,” Mr Thomson said. “The areas that we have under our own control, we are seeing an improvement but the things that are outside our control that are affecting everybody . . . there is likely to be some deterioration. It’s very hard to judge at this point.”
He said only 9 per cent, about 5000, employers would be affected by the move to an experience rating system.
Small employers, which historically have a low record of claims, will continue to pay a base rate calculated on their payroll and industry risk.
The new scheme, which also operates in NSW, has been met with some resistance from small employer groups, such as the Motor Trade Association, because it does not provide incentives for improvement, as it does for medium and large employers.
WorkCover deficits ‘unmitigated disaster’
We recall that in March this year it was reported that state WorkCover schemes are suffering worsening deficits, with the losses in South Australia now more than $1 billion.
A $222 million blowout in the unfunded liability of the South Australian scheme has created more headaches for the government and businesses struggling to pay growing premiums.
The latest actuarial figures to December 31 show the unfunded liability has grown from $952m to $1.174bn in just six months. The unfunded liability was $55m in June 2001.
The state-based WorkCover schemes oversee the compensation of employees injured in workplace accidents.
An audit by the NSW Auditor-General in November found the NSW WorkCover scheme had a deficit of $2.4bn.
The report said the deficit grew by $900m in the year to June 30 as workers found new ways to exploit the scheme, which struggled under the weight of losses already sustained during the global financial crisis. The South Australian opposition finance spokesman, Rob Lucas, said that Labor’s management of WorkCover had been an “unmitigated disaster”.
“Employers are still paying the highest levies in the nation and the scheme is suffering from the worst return-to-work figures in the nation,” Mr Lucas said.
“When the Labor government introduced their controversial amendments to the legislation in 2008 they claimed their actuarial advice was the scheme would be fully funded within five to six years. It is clear this will be yet another Labor broken promise. Labor can’t lay all the blame on global economic conditions, because for most of the past 10 years there was strong national economic growth, yet the unfunded liability rose year after year.”