Over the last few weeks, employers on the eastern side of the country have been subject to mounting cost pressures following the news of increasing workers’ compensation premiums in both New South Wales and Victoria.
In a normal year, the increases that icare announced in NSW (opens a new window) would be causing significant concern for employers, but they have been totally overshadowed by the phenomenal and unprecedented rate increases in Victoria (opens a new window).
Continuing the theme of increasing premiums, the remaining two managed fund jurisdictions (QLD and SA) have not improved the financial outlook for employers either. Both jurisdictions have announced increases in their average industry rates.
South Australia snapshot
In South Australia, the ReturnToWorkSA Board has announced that the average premium rate for 2023-2024 will be 1.85%, which is an increase of 2.8% over the 2022-2023 rate of 1.80%. This is fortunately much lower than New South Wales or Victoria.
This news follows the passing in July last year of the Return to Work (Scheme Sustainability) Amendment Act 2022 which was the new Government’s response to the Summerfield decision. (opens a new window)
Compared to the other managed fund jurisdictions, the news in South Australia will be favourable news for employers with premiums costs relatively under control. At this stage, we don’t believe there will be any other changes to the way premium is calculated in South Australia.
In Queensland it has been announced that the average net premium rate will increase to 1.29% of wages in 2023-2024, which is an increase of 4.9% compared to the 2022-2023 rate of 1.23%.
The press release from WorkCover Qld is almost apologetic, noting that this is only the second time in over a decade that the premium rate is increasing.
WorkCover Qld also note: “Mental injury and complex injury numbers are rising, which is costing us more and creating pressure on our scheme, mirroring the trends we’re seeing across Australia.”
However, what isn’t highlighted in WorkCover’s release is that it appears they are also changing one of the key “constants” in their premium formula, which will increase the premiums for any experience rated employer with claims.
Within the formula is a “Single Experience Factor” which is used to gross up current claims costs to determine the claims to wages ratio of each employer.
Specifically, WorkCover’s online simulator has been updated and is now using a Single Experience Factor of 3.42, which is an increase of 10.3% over the factor in 2022-2023 (which was 3.1). This means that every employer with claims costs will pay a higher premium in 2023-2024, regardless of the industry rate.
For many employers, we anticipate that those with an average 5% increase in industry rate plus the 10% increase in the Single Experience Factor, will result in compounding premium increases.
On a like for like basis, these will in some cases be greater than 25%. This is yet another example of how the managed fund jurisdictions can increase premiums without moving the “average” industry rate by too much.
Increases across the board
With premium increases across the country, there is no welcomed news for employers in any of the managed fund jurisdictions.
This has been driven by increasing claims costs, in significant part due to escalating numbers of mental injury claims.
For employers, it is important that they focus on the things they can control, including making sure that wages and classification and premium strategy are correct.
This includes determining whether alternative risk transfer solutions like Loss Prevention & Recovery (LPR), Large Employer Alternative Pricing (LEAP), Retro-paid loss (RPL) or self-insurance are preferable.
Importantly, employers must ensure that they are making every effort in injury prevention and subsequent injury and claim management with a focus on return to work.
Employers who do these things well are not immune from the increases in the underlying cost of workers’ compensation, but they are inoculated against the extreme impacts that unfortunately many employers will see.