NSW Workers’ Compensation Premium Updates 2024-25: what employers need to know

Insurance and Care NSW (icare) has recently unveiled its premium updates for the upcoming 2024-2025 financial year, shedding light on adjustments that may significantly impact employers across New South Wales.

In this article, we delve into what the government and icare are saying about these updates, the actual details of the updates, and what the updates actually mean for experience-rated employers in NSW.

What the Government is saying

The key headline of icare’s premium update statement (opens a new window) is the 8% increase in the average rate of workers compensation premiums for the 2024-25 financial year.

This increase is consistent with the NSW government's statutory directive issued last year, which caps the average rate of increase at 8% annually over a three-year policy period from 2023/24 to 2025/26.

In the release, icare emphasised that the additional revenue generated will aid the Nominal Insurer scheme in attaining a break-even level of funding, pointing out that there had been no increase in average premium rates between 2012 and 2020.

The factors cited by icare as driving the rate increases include inflationary pressures, a surge in complex claims, and investment volatility.

Key premium updates

Below is a summary of the key premium updates.

1. Scheme Performance Measure (SPM): Remains unchanged.

Several components are pivotal in the premium calculation formula. One such component, the SPM, remains unchanged for the 2024-2025 financial year.

SPM is a measure of the Scheme’s overall claims performance and is used within the premium calculation formula to compare an experience-rated employer’s claims performance to the overall Scheme performance.

What this means for employers:

The SPM metric essentially sets a baseline measure allowing for a comparison of an individual employer’s claims performance to that of the Scheme, resulting in broad stability in premium outcomes.

The fact that the SPM has remained the same this year indicates that the Scheme’s claims performance has stayed consistent.

This means that if an employer has improved their claims performance over the past year, it is likely to positively impact their premium.

Conversely, if an employer's claims performance has deteriorated, their premium may be negatively impacted.

2. Claims Performance Adjustment Table: Remains unchanged.

Similarly, the Claims Performance Adjustment (CPA) table, used to adjust an employer's premium based on their claims performance relative to the overall Scheme performance, remains unchanged.

What this means for employers:

While the table has not changed, an employer’s position within it can still shift due to changes in the employer's 'size' category.

This potential movement between size categories is particularly pertinent for employers already grappling with the dual challenges of rising wage costs and increasing industry rates.

Such employers are more likely to transition into higher 'size' categories within the table.

For employers, this shift means that both the rewards for exceeding the Scheme's claims performance and the penalties for underperforming are magnified.

Consequently, if an employer's claims performance is favourable relative to the SPM, they will receive a more substantial discount than if they were in a lower size category.

Conversely, if their performance falls short of the Scheme, they will incur a steeper penalty.

This amplification of the impact of an employer’s claims performance on their premium heightens the financial stakes associated with their claims performance.

3. Loss Prevention and Recovery (LPR) Adjustment Factors: Remains unchanged.

The LPR premium model provides an alternative method of calculating workers' compensation insurance premiums for employers with an Average Performance Premium (APP) of greater than $500,000.

The aim of the LPR premium model is to provide incentives for large employers to achieve better safety and return-to-work outcomes.

Under the LPR premium model each period of insurance is calculated individually based on an employer’s claims costs for that period as they mature over four years.

What this means for employers:

For LPR participants, the stabilisation of LPR adjustment factors in this period is a welcome relief, but it could also be considered cold comfort.

While LPR adjustment factors remain unchanged in this period, their significant escalation over several previous periods continues to pose ongoing challenges for employers.

The substantial increases in previous periods have resulted in a corresponding surge in the underlying cost of insurance for participants, with some experiencing increases of up to 45%.

While the stabilisation of LPR adjustment factors offers some relief, the nature of the LPR calculation method means that the full ramifications of the earlier increases have yet to be fully realised by LPR participants.

Consequently, while the halt in the rise of adjustment factors for this period brings some relief, the reality remains that LPR participants have not yet fully experienced the complete impact of the adjustment factor increases from previous periods.

4. Loss Prevention and Recovery (LPR) Plus: Confirmed as a new initiative in 2024-2025.

A notable addition for the 2024-2025 period is the introduction of Loss Prevention and Recovery (LPR) Plus.

LPR Plus is tailored for the largest and most sophisticated employers in the NSW workers' compensation scheme, whose Average Performance Premium (APP) exceeds $3 million.

It incentivises stable claims performance, prioritising injury prevention and effective return-to-work strategies, with particular emphasis on the closure of claims, which receives preferential pricing.

For more information about LPR and LPR Plus, visit the icare website (opens a new window).

What this means for employers:

While the intent of LPR Plus is to be a progressive step towards enhancing workplace safety and mitigating financial risks, the reality is that it is limited to a very small cohort of employers.

Consequently, some large employers meeting the $3 million APP threshold may find themselves unable to participate.

In addition to the promise of more significant benefits, LPR Plus also comes with significant risks.

Of notable concern is the potential for a considerable exposure to premium costs stemming from a single significant open claim, potentially posing a considerable risk for a one-off exposure.

5. Minimum Premium: Increasing from $175 to $225.

The minimum premium amount payable by an employer for a workers' compensation policy in NSW, is set to increase from $175 to $225.

6. Industry Rates: There is an increase in industry rates for some significant industries, including Health & Community Services and Education.

The purpose of Industry Rates is to ensure a fairer method of premium calculation, where each industry bears its own workers' compensation costs without relying on subsidies from other sectors.

The latest adjustments reveal a varied landscape. Of the 538 industry classifications:

  • 55 industries see no rate change

  • 212 will experience increases of 8% or less

  • 272 face increases exceeding 8%

The maximum industry rate increase is 17.65% for both the Infants and Primary Schools, and Secondary Education sectors.

What this means for employers:

For employers in industries facing above-average rate hikes, there will be significant pressure on business costs, especially when combined with other factors like wage increases in sectors such as aged care and childcare.

This confluence of rising expenses could potentially impact organisational viability and employment opportunities, necessitating careful financial planning and strategic adjustments.

7. Average rate: The stated average rate increase is 8%.

What this means for employers:

The announced average rate increase of 8% may initially seem in line with expectations, as promoted by the NSW government.

However, it's essential for employers to recognise that the calculation method for determining 'average rates' could lead to icare collecting premiums that surpass this stated increase.

This discrepancy highlights the complexity inherent in measuring the effectiveness of the workers' compensation scheme solely based on average rates.

Our recent analysis (opens a new window) delves into this issue, emphasising the potential implications and challenges associated with relying solely on average rates as a metric for scheme effectiveness.

For more Information

For more information about how workers’ compensation premiums are calculated in NSW, go to the icare website (opens a new window).

To ensure your organisation is prepared for the upcoming workers compensation premium changes, please don’t hesitate to reach out to your Lockton workers’ compensation specialist.

The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.