Explanation of the Workcover Scheme

This paper gives a clear explanation of how the scheme is supposed to work.

Overview of the WorkCover Scheme:

The Victorian WorkCover Authority (VWA) is the regulator of Victoria’s

workplace occupational health and safety management and return to work

requirements. The VWA’s objective is to improve the performance of Victoria’s

workplace safety system by: Reducing work related death, injury, illness and

disease; Reducing health and safety risks to the public; Supporting injured

workers to remain at work or return to work quickly following injury;

Ensuring quality services from its own staff, agents and other providers to

workers, employers and the community; Prosecuting individuals and companies

who fail to meet their responsibilities or defraud the system; and Maintaining

a stable, fully funded and internationally competitive system for employers,

workers and the community.

VWA acts as the regulator and the underwriter of the WorkCover scheme.

It administers the scheme through private service providers (authorised agents)

who are licensed by VWA to provide services to employers and workers in

accordance with standards and guidelines set by VWA. The legislation allows

companies other than insurers to become authorised WorkCover agents.

As at 30 June 2000, VWA employs 663 permanent employees.

The total number of employees including contractors and temporary staff

was 795.

Short History of Scheme Structure:

1985/86
Accident Compensation Act came into effect establishing WorkCare scheme.
Average levy rate set at 2.4%. 7 levy categories created ranging from 0.57% to

3.8%.

1988/89
Bonus and penalty system introduced (July 1988), 25% of levy contributed to

Bonus Fund, extra 25% Penalty added for worst 1% of employers.

1992/93
Accident Compensation Act amended and WorkCover created (December 1992).
Weekly benefits for first 26 weeks of incapacity increased to 95% of pre-injury

ordinary time weekly earnings. Weekly benefits reduced after 26 weeks of

incapacity to 90%, 70%, or 60%

of pre-injury earnings depending on level of incapacity. Weekly benefits continue

for totally and permanently incapacitated or seriously injured but cease after

2 years if the workers have capacity to work.

Liability for journey to and from work transferred to TAC Common law

restricted to serious injuries (greater than 30% impairment) and capped to a

maximum amount with an additional allowance provided for pecuniary loss.

Claims require employment to be a significant contributing factor to the injury.

Employers required to offer suitable employment within 12 months of injury.

Average levy rate remains at 3%.

1993/94
Employers excess increased to 10 days (July). Credibility adjusted experience

rated premium system introduced. Average premium rate reduced to 1.8% plus

surcharge of 25% totalling to 2.25%.

1996/97
The Health & Safety Organisation and WorkCover merge in July 1996.

1997/98
The average premium rate maintained at 1.8%. Superannuation is included into
remuneration from 1/1/98. Major amendments made to Accident Compensation

Act on 11/11/97 including: Common law payments abolished for claims injured

after 11/11/97; Weekly compensation reduced after 13 weeks of incapacity to

75% of pre-injury ordinary time weekly earnings; Weekly benefits after 2 years

of incapacity changed from 70% or 90% of pre-injury earnings, depending on

level of incapacity, to 75%. New Long Term Benefit, of 60% of pre-injury earnings

less 60% of current earnings where the worker has a current work capacity and

returned to work under their maximum capacity and satisfied specified criteria;

Table of Maims under Section 98 and Section 98A lump sum payments are

abolished for claims injured after 11/11/97 and replaced by Section 98C, which is

based on whole body impairment levels; A weekly pension payable as a result of

a work-related death to the dependent spouse and children.

1998/99
The average rate increased to 1.9%; superannuation is included into the

remuneration base for the complete financial year. Gas plant at Esso-BHP’s

Longford site explodes in September 1998 injuring 8 workers and leading

to 2 fatalities.

1999/00
The average premium rate maintained at 1.9%. Change of government with

Hon. Bob Cameron appointed as new Minister for WorkCover in October 1999.

The Accident Compensation (Common Law and Benefits) Act 2000 restores

the right for seriously injured workers to sue for common law from 20 October

1999. Mr. Bill Mountford appointed Chief Executive of the Victorian WorkCover

Authority in May 2000 following the resignation of Mr. Andrew Lindberg in

December 1999.


Accident Compensation (Common Law and Benefits) Act 2000

Restoration of Common Law Rights: The right of seriously injured workers

to sue for common law damages has been restored from 20 October 1999.

Workers will be able to access common law damages if they pass through either

of two gateways to the Serious Injury test.To pass through the first gateway the

worker must have a 30% or more whole person impairment assessed in accordance

with the American Medical Association Guides (4th edition).

The second gateway – the "narrative" test – takes into account the consequences

of the injury in terms of both economic loss and pain and suffering.

Intensive Case Review Program:
Workers injured between 12 November 1997 (when common law was abolished)

and 20 October 1999 (when it was restored) will not have access to common law.

To assist these workers the Government has asked WorkCover to establish an

intensive case review program.

Improvements to Lump Sum Benefits and Weekly Payments:

The Act makes important improvements to both the statutory lump sum benefits

and weekly payments. Other Provisions: Amendments to improve the

administration of the Medical Panels.
Restoration of the right for certain workers injured before 1 December 1992 to

bring common law proceedings. Removal of access to compensation for pain and

suffering under the Sentencing Act 1991 by certain claimants for compensation

under the Accident Compensation Act 1985 and the Transport Accident Act 1986.


WorkCover Weekly Benefits:
Process for Setting Rates: The Victorian WorkCover Authority calculates

premiums for individual employers using an experience rating system.

This system was introduced in 1993.

It means that if there is a change in experience (either for an employer or an

industry) then the premium paid by affected employers will change year-

on-year to reflect these movements. The overall principles guiding the setting

of WorkCover premiums are:
Collection of sufficient funds to meet the estimated annual fully developed costs

of the scheme; Determination of premium in an equitable manner; Minimisation

of cross subsidies;
Stability (with premium varying with claims and industry experience); and

Provision of feedback on performance through financial incentives for employers

to prevent injuries, improve claims management and encourage early return

to work.

Experience Rating:
To achieve these design principles, the WorkCover premium system uses a

number of key features: WorkCover industry rates; Workplace experience r

eflecting claims performance; Mechanisms to protect small employers.

Employer responsibility
13 weeks 95% of pre-injury average weekly earnings (PIAWE). Max $887
104 weeks 75% of PIAWE if no current work capacity. Max $887
60% of PIAWE if worker has current capacity for work. Max $532
Benefits continue to be paid at 75% of PIAWE to retirement if expected to have

no current work capacity indefinitely. Max $887 Benefits continue if a worker

has returned to work for a period of not less than 15 hrs per week, is receiving

current weekly earnings of at least $104 per week and is physically & mentally

incapable of undertaking further or additional work which could increase the

worker’s current weekly earnings. The worker is paid the difference between

60% of PIAWE and 60% of current weekly earnings. Max $532. First 10 days

Retirement (65 yrs)

For 2000-2001 the average premium rate was increased by 17% from 1.9% to

2.22% due to: The implementation of the Victorian Government’s election

commitment to return common law rights to injured workers (and the associated

changes in benefits); Funding of the WorkCover Deficit; and The flow on effect of

the Federal Government’s New Tax System, including a goods and services tax (GST).

The reintroduction of common law and associated benefit changes were costed by an independent actuary working with the tripartite Restoration of Common Law

Working Party. On the basis of these costings and costings of the flow on costs

of the new tax system, the WorkCover Board recommended to the Government

that the average premium rate be increased from 1.9 per cent of remuneration in

1999-2000 to 2.22 per cent of remuneration for 2000-2001. To ensure equity among employers, premium for 2000-2001 was calculated using the usual experience

rating system calculations, and then applying a 17 per cent increase to each employer’s

premium bill. This meant that the capping applied to premium rate increases

(approximately 20% for smaller employers and increasing with size) came into

play prior to the 17% general rate increase. Details of the formulae and

the premium calculation parameters are approved by the Governor in Council

in the form of a premiums order prior to the start of the premiums period.

Overview of Rating Structure: WorkCover premiums are driven by three

key components: Estimates of annual remuneration; Claims costs; Employer

risk levels.

Remuneration:
Prior to the commencement of the premium year, employers provide initial

estimates of their remuneration for the premium year. A remuneration deductible

of $15,500 is applied to each employer’s remuneration and the result is used as

the basis for the initial calculation of premium. At the end of the premium year

remuneration is certified by the employer and the certified remuneration, less

$15,500 is used as the base for the confirmed premium calculation.

Claims Costs:
For the initial premium calculation claims cost estimates for the two years prior

to the premium year are used as the basis for the calculation. These costs are

extracted in May each year and factor (F) is calculated to standardise claim

cost estimates between agents and to ensure that agent estimates align with

actuarial estimates in each year. The effect of claims costs on an employer’s

premium depends on the size of an employer’s remuneration and the level of

industry risk. At the end of the premium year the calculation of confirmed

premium utilises the estimated claims costs from the two years prior to the

premium year plus the estimated costs for the premium year.

For this calculation the factors (F) are recalculated.

Employer Risk Levels:
Each year an employer’s premium is calculated using a mix of experience and

that employer’s rate for the prior year – the prior year rate is also adjusted to

reflect changes in industry rates. For small employers the prior rate and industry

rate changes are the major factors driving premium rate changes (for a new

employer the industry rate is used as the premium rate). Industry rates are

calculated annually for 518 industries using the claims cost ratio to allocate the

industry to one of 18 rates. These rates move in 20% steps starting at 0.33%

up to 8.4%. These factors are given a weighting, which depends on the

employer’s size and the risks of the industry they operate in. Although it is

complex in nature, the premium estimation for each employer is made by

considering two components; Individual Experience and Prior Experience, and

adjusting the relative weighting of those components by using a mixing factor

Individual Experience
Driven by own claims experience; May comprise 0-90% of premium

Typically, a very small component for small businesses and a large component

for large businesses

Prior Experience
Comprised of two elements; Rate for previous year ;Changes in Industry

Rate May comprise 10-100% of premium Typically the dominant component

for small businesses and a smaller influence on large businesses

Mixing Factor
Determines relative weighting of Individual Experience and Prior

Experience Premium Large employers’ premiums depend more on their

claims experience, whereas small employers is driven almost totally by the

rate applying to their industry.

History of Average Premium Rate:
For much of the 1990’s premium rates have been below 2% of remuneration.
Increases in unfunded liabilities in 1997 saw rates increase in 1998 and the

definition of remuneration extended to include superannuation payments.
A 17% increase in rates was applied in 2000/01 to cover the costs of the:

Reintroduction of common law; Changes to impairment and weekly benefits;

Funding the scheme deficit; Flow on from the new tax system.

Future Priorities:
Of critical importance to improving workplace health and safety

will be: Analysing claims data to target high-risk areas for coordinated prevention

activities; Providing the right incentives to stimulate workplace investment

in best practice health and safety systems; Assisting and requiring workplaces

to achieve and maintain statutory compliance.

The compensation/return to work side should focus on:
Ensuring fair benefits for injured workers; Prudent management of common

law; Effective claims management.