• Murray McCully
Accident Insurance

1 Why is the Government opening the ACC Employers' scheme to competition?

To improve employer focus on prevention of injuries and rehabilitation, reduce the overall cost of injuries to society and to give employers and the self-employed a choice of insurer and service quality. To motivate the existing monopoly workplace accident insurer, ARCI Corporation, to provide a better value-for-money service to premium payers and clients.

2 Why introduce competition when you can just extend the Accredited Employers' Programme?

Just extending the programme does not address the need to reach those employers with a poor safety record and provide them with incentives to improve that record.

It is also difficult to extend the programme to smaller employers, preventing them from benefiting from good safety records. The programme has already been enhanced this year to enable employers to case manage clients for up to two years, instead of 12 months. This was partly in response to the significant differences that have emerged between those treated under the programme and those outside of it.

The proportion of workers whose employers were part of the programme who were receiving rehabilitation treatment and compensation for 12 months or more was only 7.4% in 1996/97 compared with 12.7% for those on the scheme generally.

3 What will the ARCI Corporation's role be?

The ARCI Corporation will be restructured to form a new crown entity that will compete fairly with private insurers. It will remain Government owned and operated and will continue to manage and underwrite past and future claims from the Earners', Motor Vehicle and Non-earners' schemes.

The ARCI Ministers will oversee the change process and communications with key stakeholders in the lead up to 1 July 1999. The ARCI Corporation will manage communications to ensure its staff and customers are properly informed and consulted.

4 What is the impact on the Crown accounts of the move to competition?

The Crown's long term fiscal risk associated with the current pay-as-you-go funding of the ACC scheme would be substantially reduced with a fully-funded scheme. Employers and insurers will assume more responsibility for these risks. There will be some short term costs from making the change but these will be outweighed by the net benefits which include choice, a strong focus on meeting clients' needs as well as the prevention of injuries and a greater focus on rehabilitation, and fairer premiums.

The capital costs to put the ARCI Corporation on a competitively neutral basis are estimated in excess of $100M.

5 Will premium costs reduce or increase?

Commercial insurers will set actuarially fair premiums. This means that those employers who have low risk workplaces or who manage the risk and reduce work injuries will benefit through the lower level of premium they pay.

Those with high risk workplaces and those who do not focus on preventing injuries will be penalised through premiums that reflect that risk. The changes are aimed at bringing a greater level of employer responsibility for reducing work injuries.

The end result will be a stronger focus on preventing injuries and deaths in the workplace and a stronger focus on rehabilitation.

6 What will the overall impact on health and safety be?

There is an unacceptably high level of on the job deaths and injuries.

For the 10 months to 20 April this year there were already five more fatal injury cases investigated by OSH than the 41 for the whole of the previous year. These changes will mean that those best placed to assess and manage the risks of injuries to workers, ie employers and insurers, will have both the responsibility and the incentives to keep workplaces safe.

While it is hard to compare apples with apples when looking at other schemes because none around the world exactly match ours, what is clear is that focusing incentives on prevention and rehabilitation makes an impact on the volume and seriousness of workers compensation claims.

The Accredited Employers' Programme reports a drop in claims incidence of more than 15% in 1996/97 (see also Q2)

7 What about the no fault aspects of the original scheme?

The scheme will remain 24 hour, comprehensive, compulsory and no fault. It is not the scheme that is changing; it is the way it is delivered and the institution that underwrites the financial risk.

8 How does this fit with the Coalition Agreement?

The Coalition Agreement includes the statement of general direction to "rebuild public confidence in ACC by restoring it to a world-leading, 24 hour, comprehensive but affordable accident cover".

These proposals seek to achieve that objective while also complying with the specific objectives relating to ACC in the Agreement.

9 What sort of regulatory environment will there be?

Officials are working to design a regulatory environment that encourages a fully competitive market to realise the benefits of introducing competition. The environment will allow employers and the self-employed as much choice as possible, while still retaining the comprehensive nature of the scheme; it will also allow insurers to provide innovative ways of meeting needs.

The aim will also be to make sure that the costs to industry of complying with the regulations don't create a barrier to them entering the market.

10 What would happen to an injured worker whose employer goes bust or if the insurer goes bust?

The Government will ensure that workers will receive at least the current level of entitlements if this happens. Working out the details of this is part of the work being done on the regulatory environment.

11 What if an employer cannot afford accident insurance?

Employers are already required to pay premiums which reflect their industry's risk, and the individual experience of the employer. This is a legitimate cost of being in business.

Employers whose employees face levels of risk above the industry average would face the costs and be encouraged to take steps to create a safer work environment.

12 What if no one will insure an employer?

Employers or self-employed people who can demonstrate that they have been unable to find an insurer willing to offer them cover will be assigned to an insurer who will be required to accept the contract of cover and to charge an actuarially fair price.

13 What would be the role of Government in prevention programmes?

The ARCI Corporation will still manage claims for the Earners', Non-earners' and Motor Vehicle schemes so it will still be involved in prevention, rehabilitation and compensation. Commercial insurers and the ARCI Corporation are also likely to undertake injury prevention programmes and invest in them because of the commercial benefits.

The Government will remain involved in this work outside of the context of the ACC scheme, e.g. with public health and the Occupational Safety and Health Service (OSH).

14 Will competition result in disincentives for individuals to participate in sports, fitness and recreation?

No, sports injuries are covered by the ACC Earners' scheme and the Non-earners' scheme as non-work injuries. It is currently proposed to introduce competition only to the Employers' scheme.

The only possible effects would be with regard to professional sports people, i.e. employees or self employed, such as professional rugby players, aerobics instructors and mountain guides (there were 222 sport related work claims registered in 1997).

Employers' scheme premiums currently reflect a measure of risk associated with these activities, and would be more closely tied to risk when commercial insurers enter the market. At the same time, people who are in low risk jobs would see that low risk reflected in their premiums. Cross subsidisation would be replaced by fairer premiums.

15 Why 1 July 1999?

This allows time for the detail of the regulatory environment to be worked through and implemented and for employers to be informed and ready to make a choice about their insurer. This date would also provide a smooth transition period for the ARCI Corporation, and it would give commercial insurers more time to prepare to enter the market.


People injured at work could expect:

  • a similar initial process to that they currently experience following an accident with first point of contact with a medical professional;
  • prompt payment and prompt rehabilitation plans for serious injuries;
  • greater employer involvement in their rehabilitation, such as providing on site jobs, if claimants are injured at work, and particularly if their employer is large (firms with over 50 staff employ 47% of full time equivalent workers);
  • increased access to specialist rehabilitation providers and elective surgery;

Employers could expect:

  • · choice of insurer;
  • · more information on the accidents in their workplace;
  • · to be rewarded through financial incentives such as lower and forward looking premiums for safe working environments;
  • · if large employers, insurer-provided individualised safety programmes;
  • · if small employers, the potential to participate in industry based prevention and training programmes.

Self-employed people could expect:

  • · choice of insurer;
  • · to be rewarded through financial incentives such as lower premiums for safe working environments;
  • · increased choice of entitlements above the minimum specified in legislation;
  • · efficiencies by bundling work and non-work injury coverage;
  • · more certainty in cover and entitlements.