NSW workers’ compensation scheme in disarray

NSW workers’ compensation scheme in disarray

January 12, 2020

Deteriorating performance of the NSW workers’ compensation scheme.

A review of the Nominal Insurer (NI) was commissioned in February 2019 to determine the reasons for deterioration in the NI performance. The final report was released in December 2019.

A report in the Australian Financial Review in September 2019 highlighted the problems.

The sustainability of the NSW workers compensation Nominal Insurer, which insures 3.6 million employees and collects over $2 billion in premiums a year, is in jeopardy according to Peter McCarthy the former workers compensation principal actuarial adviser to the State Insurance Regulatory Authority (SIRA).”I have been advising or working in personal injuries schemes like icare around Australia and overseas for nearly 35 years and I have never seen a scheme deteriorate as much in such a short time frame,” Mr McCarthy told The Australian Financial Review.

In Mr McCarthy’s view, if the scheme went into deficit, employer premiums would have to increase by between 45 and 60 per cent.

In addition to workers compensation, the $36 billion icare also insures builders and homeowners, provides treatment and care to those severely injured on NSW roads and protects over $193 billion of NSW Government assets.  Workers compensation accounts for about 50 to 60 per cent of what icare does.

The company’s chief executive John Nagle rejected that the scheme was falling into disrepair.

However Mr McCarthy pointed to icare’s 2018 financial year results, which showed a blowout in the number of impaired premiums.

Impaired premiums increased by over $50 million from the 2017 to 2018 financial year, up from $35 million to $87 million. Further, as of the 2018 financial year there were $226 million in overdue premiums sitting on icare’s books, an increase from $39 million in 2015.

NSW Treasurer Dominic Perrottet said the Labor government had left the state’s workers compensation scheme facing a $4 billion deficit. “We have done the hard yards to repair their damage and provide financial stability, and icare’s board and management have been instrumental in this.”

Concerns over rising costs

Observers concerned with the health of the scheme also point to rising costs. According to a libaility valuation commissioned by icare in 2018 had a $1.3 billion surplus for the scheme. However, two years prior at June 30, 2016, a liability valuation by PwC estimated assets of $17.9 billion and liabilities of $14.6 billion, a surplus of $3.4 billion.

Medical costs for icare had risen by 40 per cent combined over the past four years. Mr Nagle said “we don’t control some medical costs as they are regulated.”

Data from the regulator showed that icare’s medical costs between the 2016 and 2018 financial years increased significantly more than those for specialised and self-insurers, and the Treasury Managed Fund.

icare’s return to work rate, which points to the speed at which injured workers get healthy and back to work, has fallen according to both SIRA data and icare data, although the degree varies. A major problem is that the definition of return to work differs between SIRA and icare.

SIRA has had concerns about whether injured workers were getting the right level of early support to assist in recovery, and whether premiums were being administered in a compliant, transparent and consistent way.

An overview of the executive summary


In 2015 NSW WorkCover was replaced by:

  1. State Insurance Regulatory Authority (SIRA) –a new independent regulator of NSW insurance schemes (worker compensation, home building compensation and compulsory third party). SIRA was to oversee the Notional Insurer.
  2. b) Insurance & Care NSW (icare) –an insurance and care service Icare is the responsible entity for the NI.
  3. c) SafeWork NSW –an independent workplace safety regulator.


SIRA has had limited ability to enforce guidelines and standards or direct icare.

Icare  implemented an ambitious model based on principles of triage, injured worker empowerment and straight through processing in January 2018. There is now one insurance agent for all new claims (EML).


The ambition of the model was matched by the ambition of the timeframe for implementation and the control by icare over EML. This has caused substantial confusion within the market and employers in particular, have complained about the lack of involvement in return to work (RTW) plans and claims verification. The new claims model has led to a significant deterioration in the performance of the NI, through poorer return to work rates, underwriting losses, no competition and therefore, concentration of risk.


The primary driver for the decline is the implementation and operation of the new claims model implemented by icare. icare has implemented a number of improvements to improve the performance of the NI. They have not reversed the decline.


The reviewer noted that an icare Board report shows that 46% of the NI’s claims are non-compliant with the legislation, and that icare considers this non-compliance as a lower order risk. This approach to compliance seems to indicate an absence of concern with regulatory matters.

Concerns were expressed in the submissions about lack of information about premiums, including reasons for marked increases, delayed or no response to queries and a call centre dealing with initial claims contributing to further delays, lack of proactive case management, inconsistent approach and errors, as well as lost paperwork. The outcome of this approach is seen as promoting reactive case management, poor communications and a lack of accountability.

Concerns were expressed about relevant case manager experience and skill levels,as well as a lack of understanding of workers compensation legislation/operations. Inappropriate hiring, inexperience and high staff turnover were all raised as issues. Positive comments were made about the motivations and attitudes of some individual staff

High caseload volume and inadequate resourcing were mentioned as adversely effecting the operation of the scheme. These issues were often connected with other issues of claims model design, communication, delays and RTW outcomes.

The single issue raised most commonly across claims submissions related to communication. The quality, frequency and clarity of communication from the NI and its agents was consistently seen by all stakeholders as an issue to be addressed. These communication issues were viewed as leading to delays, confusion, worse outcomes and increased frustration between participants.

Submissions specifically mentioned experiencing delays in obtaining approval and delaying required or agreed treatment.

The 2019 NI RTW rate has deteriorated to 84% from 93% in 2018 and 96% in 2016.This rate measures the percentage of injured workers who report having returned to work at any time.

The current NI RTW rate measured by a survey has reduced to 73% 83% in the 2018 NI RTWSurvey.

Many complained about the shift to the single scheme agent and the loss of choice and competition within the scheme. This had caused a deterioration in claims management as well as a depletion of the broader pool of experience of claims managers in the NSW workers compensation system.

The Medical Support Panel was thought to be completely unnecessary, creating more delays… The MSP process required multiple levels of internal review at EML, unacceptable MSP responses and further delays which effected the worker’s recovery and the employer’s premium.’

The review did not cover matters around medical treatment in any detail because the pre-eminent concerns raised were about delays to treatment caused by poor claims management. There were some concerns expressed about lack of choice and independent medical examiners, but this was regarded as a result of poor execution rather than an inherent problem with the new claims model.







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