A Fresh Future for ACCAssociate Accident Rehabilitation and Compensation Insurance
The speech focuses on how a 24 hour, no fault accident rehabilition scheme will be maintained, benefits for workers and employers from the introduction of competition and how the changes to ACC will affect Government overall.
Ladies and gentlemen. Good afternoon and thank you for the opportunity to speak to you today.
As you are no doubt aware, Budget 1998 announced significant changes to the ACC scheme. I'd like to run through some of the issues associated with those changes.
My colleague Murray McCully, the Minister for ACC, and I have been working to improve the services that people can expect to receive from ACC.
All too often you hear opposition politicians wading into ACC. And, for some time employers have also been asking us to change the way ACC does things. They claim that they and insurers are the best people to manage the risk of work related injuries.
The Government agrees. We have decided that the benefits to employers and their employees outweigh any costs of regulating a competitive environment. So, from 1st July 1999 employers and the self employed will be able to shop around for their accident insurer.
Injuries are a huge cost to society and the economy. Providing employers and the self employed with a choice of accident insurer will create strong incentives for injury prevention and rehabilitation. Firms with good accident records will have this more strongly reflected in lower premiums.
The Government will ensure that every New Zealander has access to a 24 hour no fault accident rehabilitation and compensation scheme. We will also make sure that cover and entitlements remain at least at current levels.
Only the Employers Account will be affected by the new changes; enabling employers and self employed to choose their insurer. The Earners, Non-Earners and Motor Vehicle Accounts will continue to operate as they currently do.
How a 24 hour no fault scheme will be maintained with competition
ACC will be restructured to form a new entity that will compete fairly with private insurers. ACC will remain Government owned and operated. There will no longer be a monopoly provider of workplace injury insurance.
Employers will benefit from the flexibility to arrange insurance packages that suit their particular needs, and those of their workers. Self employed people, will benefit from being able to buy one insurance product that covers both injuries at work and out of work.
In addition to current cover and entitlements the changes will also provide incentives to give injured workers faster access to rehabilitation and medical services, resulting in a quicker return to productive work.
We are confident that our proposals will deliver results. Since 1995 ACC has been operating a limited form of competition by allowing selected large employers to manage their employees' work injury claims for up to 12 months.
Recently we announced an expansion of this programme to allow more employers to enter the scheme. We have also extended the 12 month injury management period to 2 years.
This accredited employer programme has shown positive results. There has been a significant decrease in the cost and duration of injuries in accredited employers' workplaces.
Yesterday it was announced that $85 million will be refunded to accredited employers who have performed well and prevented accidents. That makes a big difference for a lot of businesses and the economy.
A recent article in the Independent newspaper highlighted another example of competition improving the benefits for employees and employers alike. The Police and the DB Group contracted a risk management company to sharpen their business risk management. Due to the processes and training that was put in place the two organisations made substantial reductions in the costs of risks and the costs of losses.
The programmes put in place increased the focus by staff on risk management and the focus by management on risk.
The two organisations agreed that it is better not to let it happen than to just go to the insurance company when it does.
The article also said that staff are being rehabilitated quicker because the company is involved in the process. Injured staff are no longer getting lost on the long term claim tail.
The article is an excellent example of how limited competition has increased the benefits both to employers and employees.
We have been encouraged by the Corporation's recent performance, especially its focus on rehabilitation. This has led to a fall in the number of long term claimants. The Corporation has also been successful in bringing its administration costs under control.
ACC's improved performance, however, should not be seen in isolation from the reality of competition that it now faces.
We believe that introducing real competition to the employers' scheme will ensure that the Corporation's performance continually improves.
Processes will exist to safeguard workers
Workers can be assured of certainty in a competitive environment.
A regulatory body will oversee the market to ensure stability. Insurers will not be allowed, by law, to offer contracts that contain benefits less than those spelled out in legislation. Indeed, it is quite possible that benefits offered by commercial insurers may deliver a greater level of rehabilitation and compensation than currently available.
New legislation will help workers deal with disputes over insurance cover. The legislation will include quick, fair and low cost dispute resolution processes including recourse to the District Court if it is necessary.
Safety nets will be put in place in the unlikely event of an insurer going bust. A guarantee fund, possibly not too dissimilar to your legal fidelity fund, will be established. The Government will also make sure that there are strict regulations governing the entry requirements of those allowed into the market.
How this affects the Government overall
Of course, the Government still has to face the tough question of managing the costs of all the past and some future ACC claims.
It is estimated that there is an existing claims "tail" of $5 billion in the employer's account. This is because in the past ACC was funded on a pay-as-you-go basis. These changes mean moving to full funding and forward looking premiums.
Existing claims account for a massive 85% of each year's premium. This means that if a worker injured 20 years ago, in a workplace that shut down 10 years ago, is still on ACC's books, the ongoing cost of compensating that injured worker is met by today's employers. To pay for these costs ACC would need to have around $5 billion in the bank today.
We have to make a decision on how this "tail" is funded. The changes that we're introducing mean premiums will cover not only this year's costs of an injury but also any future costs for longer term serious injuries.
Currently the unfunded liability is not formally on the Crown accounts. The Auditor General has indicated that this unfunded liability should be formally recognised. Therefore, the outstanding claims obligations will be recorded on the Crown's balance sheet at 30 June 1999.
Recognising this unfunded liability across all accounts results in a net negative impact on the Crown's net worth of around $8 billion at 30 June 1999. The $8 billion being the liability across all accounts. It is important to note that this change in accounting policy will not affect cash flows or net Crown debt.
With commercial insurers as well as a Government-owned insurer underwriting claims for workplace injuries, the fiscal risk to the Crown will be reduced. Under the current system it would have continued to increase.
As I have already stated, the changes will come into effect on 1 July 1999. A programme of further work must be completed during the next few months.
The work includes:
restructuring the existing ACC Corporation to ensure it is able to fairly compete in the new market;
establishing the regulatory functions required to oversee operation of the market;
updating systems in affected government agencies such as IRD; and last but by no means least,
addressing the 'tail' of claims.
Murray McCully and I will be regularly updating employer and employee representatives, the insurance industry, health providers and other key stakeholders throughout the development of the new market.
A Bill incorporating the changes will be introduced to Parliament later this year. Members of the public will have the opportunity to comment on the proposed changes when the Bill is being considered in the appropriate Select Committee.
We will be driving home the message that by July next year all employers and the self employed must have chosen an insurer, either with the ACC Corporation or elsewhere, and have proof of that insurance.
Most importantly, workers can be assured of certainty. Certainty that they will be supported if they have an accident and need rehabilitation and compensation. Certainty that they will have access to a 24 hour, no fault accident compensation scheme. And certainty that they will receive the same or better benefits than they do now.