Pondering a shift in ACC

FIVE YEARS ago, Joel Storey was paralysed from the waist down in an apparent gang attack in the car park of his employer Affco's Wairoa premises.

The event started a long dispute over who was liable to pay a $1 million compensation bill for Storey's injuries - meat company Affco, or state-owned insurer ACC.

The case is complex. Affco had agreed with ACC to run its own workers' compo, with high-cost claims being handed back to the state insurer. ACC claims Affco is responsible for the first million of what is likely to be a $10m claim.

Affco says the shooting was beyond employer responsibility and was not a workplace accident. ACC disagrees, and the two parties have gone to court.

Storey's situation exemplifies the contentious zone of huge human and financial costs the National Party has entered with its ACC policy. National wants to allow businesses to use private insurers for workplace accident cover and argues workers will be safer as a result.

But leader John Key looks out of touch with his business constituency if he thinks it wants competition in ACC again.

Business certainly wants changes in the way accident compensation is run, particularly a return to ACC employer levies which improve incentives to create safer workplaces.

But on the question of part-privatising workers' compo, it's a case of "once bitten, twice shy".

"Business doesn't want to go back to 1999 - there's no appetite for that," said Paul Mackay, an employment expert with Business NZ.

And sources within the insurance industry with a long history in worker insurance also doubt National can deliver safer workplaces at less cost.

Besides opening up the ACC Work Account to competition, National is promising to open up the ACC books to identify areas of cross-subsidising and cost-shifting between the various ACC accounts.

One source, who wished to remain anonymous, said recent actuarial work on what is known of ACC accounts indicates the Work Account might be underfunded by up to 30%.

"It's going to be a very interesting story when the books are opened, but if there is an actual shortfall, and it is sheeted back to employers, we are going to see a substantial increase in ACC premiums," he said.

Some employers could see ACC costs fall if their levies more accurately reflected a good safety record, "but overall there could be an increase", he said.

Mackay said it was difficult to argue that the lowest ACC levies could drop even further. A recent report on ACC by PricewaterhouseCoopers found the levies were lower than any in Australia.

"But the concern remains that employers now paying higher rates should be better incentivised to pay lower levies by doing better in health and safety."

Widely ignored when private insurers were sent packing eight years ago was the fact that Labour also abolished the long-standing experience ratings system of setting ACC levies for employers. Experience ratings work much like a no-claims bonus on car insurance. If you have no accidents you pay a lower premium.

But Labour and the unions believed such a system encouraged employers to hide workplace injuries, suppress claims, and encouraged employers to return injured workers to the workplace before they had recovered.

So the new government introduced a system where businesses agreed to self-insure in return for reductions of up to 90% of their ACC levy. Around 25% of New Zealand employees in more than 150 businesses, including Affco, are covered in this way.

But MacKay said the self-insurance scheme was limited by the fact that the business had to be large enough and possess the necessary skills.

If it was not able to convince ACC it could do that, then it paid an ACC levy set across an industry class, with no regard to its safety record, and with no ability to "climb down the ladder" of ACC premiums by doing better in the workplace.

MacKay said there was a fair degree of satisfaction among those accredited by ACC to self-manage. "But that still leaves a lot of other businesses who are not incentivised," he said.

There were other incentives for smaller businesses to do better in workplace safety, such as 10% premium reductions for businesses which had certain safety procedures in place. "But this sort of thing doesn't get to the heart of the issue," he said.

Both MacKay and health and employment lawyers said some big employers were finding aspects of the self-insuring scheme less attractive over time, and there was talk of some withdrawing from it.

Paul White, an employment law specialist with Chapman Tripp, said some companies were finding themselves with bills of $1 million to meet for employees permanently off work, despite an agreement for long-term claims to be handed back to ACC after five years.

MacKay said more sharply focused incentives to improve workplace safety did not depend on greater contestability through opening up ACC to private insurers.

"They did extremely well last time, and then got badly bitten," he said. "There is not a lot of sympathy for the [insurance] industry in that regard."

He said there was no groundswell of opinion among business to return to private competition. "Doing better within the present system is seen as preferable," he said.

The prospect of opening up ACC to private competition also gets short shrift in the recent PricewaterhouseCoopers report.

It concluded that, under its current structure, the ACC performed as well or better than most other schemes around the world and formed a "moderately strong view" that a government monopoly was the best way to run workers' compensation.

Although the nine workers' compensation systems in Australia differ significantly from New Zealand's, all big states except Western Australia also have state monopoly schemes.

South Australia has just made big changes to its worker compensation scheme, but Phillips Fox (Adelaide) partner Caroline Knight said they strengthened the government monopoly.

She said the South Australian government abolished its part-privatised system some years ago, "and the concern here seems to be that opening up workers' compensation to privatisation may erode the integrity of the schemes".

There was no push to privatise the work accounts within the various Australian schemes, and the possibility this could happen in New Zealand was probably a reason why Australian insurance companies were taking a keen interest in events across the Tasman.

The PricewaterhouseCoopers report also provided ammunition for those calling for a reintroduction of experience ratings for businesses. They would be more fair and efficient for medium-sized employers which could not take part in the present scheme's self-management programme, it said.

And while the report provides plenty of ammunition for those assuming bragging rights about our accident compensation scheme being the best in the world, it also points to an ugly underbelly. And that is New Zealand's less-than-impressive work safety record.

ACC statistics show the number of new claims related to workplace fatalities, which were in the high 60s in 1999-2000, had climbed in a more or less steady path to 129 in 2006 and 119 in 2007.

Department of Labour figures on reported work-related fatalities in 1993-99 averaged 47, while they rose to an average 61 in the six years from 2001-07. The number of work-related ACC injury claims increased every year from 2002 to 2005.

Latest OECD work safety figures are from 2003, and show New Zealand third highest (behind Canada and France) in a list of eight countries for fatal work accidents per 100,000 workers. New Zealand's reported 5.1 deaths compared with Australia's 2.0.

Critics say that in the eight years since the government moved away from a commercial model for ACC, New Zealand has got what are possibly the cheapest workers' compensation premiums in the OECD, and one of the worst performances on safety issues.

Government ministers have warned that costs will likely rise if the ACC is part-privatised once again. And given that private insurers will have to make their books work without the help of a politically-set and subsidised levy which the opening of the books is expected to reveal, that might be the outcome.

The debate New Zealand has to have is whether cheap is necessarily best when it comes to workplace health and safety. And if it's going to take more money, then how and where it is best spent.

- © Fairfax NZ News