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Is Private Underwriting coming to NSW?

At present WA, ACT, Tasmania and Northern Territory have privately underwritten Workers Compensation systems. In simple terms it means that Insurers are able to underwrite the risk in a similar manner that they do with general insurance. The premium comes back to the Insurers and claims are paid out of their funds. This differs from government run schemes where the Insurer is merely managing the government’s money.

There have been previous attempts to implement a privately underwritten system in NSW, but the scheme has not been in a financially strong enough position for this to occur. Why would Insurers take on a scheme that is losing money? The recent announcement that the scheme is now in a healthy surplus position has seen talk of a private scheme in the near future  start again .A recent federal Financial Inquiry has received a number of submissions touting the virtues of a privately underwritten system as outlined below ;

“Competitive underwriting of workers’ compensation removes “pressure” on governments to price premiums to meet “political objectives”, the federal Financial System Inquiry (FSI) has been told.

In the first wave of second-round submissions FSI released late last week (August 29), the Insurance Council of Australia (ICA), Insurance Australia Group (IAG) and Suncorp renewed insurance industry pitches for private insurers to underwrite more w/comp schemes in Aust. WA, Tas, the ACT and the NT (WCR 984) w/comp schemes are privately underwritten. The Federal Government’s Bill designed to broaden corporate access to the Comcare scheme as self insurers and introduce a national employer test is in the House of Representatives (WCR 983, 978, 963). In their latest FSI submissions, ICA, IAG and Suncorp responded to its July 15 interim report. FSI had sought more information on whether opening up state schemes to competition would improve value for “consumers”. It asked the question after insurers and brokers raised the issue in first-round submissions. ICA defined consumers as w/comp policyholders (eg, employers) and claimants (eg, workers). It said political pricing of risk could lead to “significant under- or over-pricing of risk, “inefficient” cross-subsidies between employers and “intergenerational inequities” for policyholders. IAG said the Commonwealth Insurance Act “specifically excludes” state monopoly schemes from having to comply with APRA requirements. “As a result, most publicly underwritten schemes do not comply with APRA’s prudential requirements and have been underfunded on numerous occasions,” it said. “Underfunding can have detrimental social and economic consequences.” Eg, where “catch-up” premium surcharges were applied “so today’s employers pay the cost of an earlier generation’s claims”. Alternatively, “sharp and significant reductions in injured worker benefits have been the solution”. IAG said partial funding and inter-generational transfers distorted “the price signal that rewards or penalises large employers for safety and return-to-work performance”. Suncorp noted the 2014 National Commission of Audit (WCR 970) had recommended Comcare’s claims management function be outsourced and private sector underwriting of the scheme “pursued”. Suncorp was not alone in saying private insurers were strongly motivated to “innovate” and “continuously improve to retain customers and grow market share”. Privatising statutory personal injury schemes left govt in a position to focus on its core scheme regulation role, Suncorp said.”

Time will tell if NSW or any other scheme becomes privately underwritten. For the moment there is certainly a lot of activity behind the scenes looking at this possible change.

 Source: Thompson Reuters Workers Compensation Report 985 2nd September 2014

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