At a glance:
The Victorian Government is exploring an overhaul of Victoria’s workers’ compensation scheme, WorkCover.
Mental health claims are putting pressure on WorkCover.
The Victorian WorkCover authority recorded an insurance deficit of $1.6 billion last financial year, following a $3.9 billion deficit the previous year.
This reform will likely mean higher premiums for businesses.
How can organisations respond?
The Victorian Government has made a statement that there will be a reform of the current Victorian WorkCover scheme, insisting it is dated and “not fit for purpose” in the modern work environment. The reform will likely bring about higher premiums for businesses following this year’s state election.
The rise of mental health claims is also contributing to the instability of the scheme, as the duration to resolve mental health issues or injuries is longer and often requires additional services.
An article by The Age notes that mental health claims are complicated and expensive to manage. More than 55 percent of employees who go on leave because of a psycho-social injury in Victoria are still away from their jobs after six months, compared with just 23 percent with physical injuries. WorkSafe Victoria, the government agency that runs the workers’ compensation scheme, said growing community awareness of mental health meant workers were more likely to seek treatment and take time off work than in the past.
So what does this news all mean for organisations and what steps do they need to take?
What are the various scenarios that can unfold?
We may see increases in lump sum settlements with more workers receiving long-term compensation benefits beyond the 130-week average benefit entitlement.
We are currently seeing claim statistical case estimates sitting at $1 million dollars plus – when claims are capped in Victoria at $438,300. This will mean claims are likely to remain capped for the three premium-impacting years in Victoria – causing additional premium challenges for employers.
What are some of the impacts?
Businesses operating in sectors such as construction and healthcare are already at higher risk for workers’ compensation claims, so this anticipated spike will place them under further financial pressure. It’s important that workers in high-risk industries receive appropriate health and safety training, and that they receive adequate rest time to avoid accidents as well as relieve mental stressors.
A large proportion of WorkCover’s claims come for mental health illness, however, mental health claims often take longer to resolve. This has a major impact on businesses as they have people absent for prolonged periods of time. With the expected increases in premiums, this lengthy process is going to add another layer of financial stress to businesses hit on both sides. It’s important that companies take proactive measures to reduce the length of time a worker is absent from work by helping with their return-to-work transition.
In the interim, here are three actions you can take:
1. Engaging with a specialist workers’ compensation insurance advisor and conducting a claim review offers the opportunity to ensure that short-term and long-term strategic goals are in place. Return-to-work and sustainability continue to be the main drivers and need to remain the focus to best support injured workers and the containment of costs.
2. Conduct a self-insurance financial feasibility study to determine what workers’ compensation scheme options are available and which one is the most financially viable. Self-insurance for the right organisations can help CFOs control their own destiny in the face of uncertainty. When insuring people for workers' compensation, this option can be financially more lucrative and give greater control over claims management. In Victoria, the legal requirements are:
Employees: no minimum requirement however a minimum of 500 full-time employees is recommended.
Financial requirements: provide financial information to be assessed for eligibility. The employer must lodge an application to become a self-insurer within 12 months post being assessed as eligible. Four years of data are required. Audited financial accounts which are certified by directors/owners must be provided. Primary and secondary financial indicators need to be assessed.
WHS requirements: comply with the Occupational Health & Safety Act 2004 (Vic) and the national self-insurer OHS management system audit tool (NAT). This may include on-site audits and inspections to verify compliance.
3. Analyse employee data to understand where there are gaps in the workforce such as absences from injuries and mental illness. This can help organisations to develop suitable injury management policies and procedures to decrease workers’ compensation claims. In Lockton’s 2022 People Insurance Outperformance Report (opens a new window), we suggest:
Establish robust early intervention and injury management processes.
Maintain regular contact with an injured worker from notification of injury to claim closure. Workers who receive support from their employer have up to five times greater odds of returning to work.
Support return-to-work duties where practicable to reduce time lost.
Maintain regular contact with the insurer/agent to ensure timely decisions are being made and clear strategies are in place to assist the injured worker with recovery.
Whilst the full extent of events is yet to unfold, businesses will need to take proactive action to be well-prepared. Reviewing and exploring options and speaking to experts will cumulatively help organisations to be in better stead ahead of the state election, when the full changes will be revealed.