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Workers’ Compensation (WC) premiums are one of the most expensive insurance costs a business can have, so the 42% increase in levies to fund the state of Victoria's WorkCover scheme is hardly welcome news for the Victorian business community. The rise in costs is mainly due to a surge in mental health injuries, with long-term participation in the scheme and mental injury claims rising to represent 16% of new claims.
While the increase is a shock, it is not necessarily surprising. What is especially disappointing for businesses is that these increases do not provide a balanced approach in tempering these costs, certainly off the back of the WorkCover premium rate review where the average premium rate remained at 1.272 for 2022-23 to help businesses recover from the impact of the COVID-19 pandemic.
At the time this was beneficial to businesses, but it now seems to have been a short-sighted approach considering the Auditor-General’s Annual Financial report for the State of Victoria: 2020-21 (as well as the subsequent report for 2021-22). The report highlights the underperforming scheme was impacted by the rise mental health claims as well as the duration of claims and sustained and unchanged premium rates. The State Government had already stepped in and bailed out WorkSafe to the tune of $1B across 2020-21 and 2021-22, respectively.
While WorkSafe had proposed numerous changes to the Psychosocial Health Regulations, and is now proposing additional changes to the criteria around eligibility. These reforms can take years to implement before any tangible changes are seen through scheme performance.
Based on the Auditor General’s findings, we can expect that premium rates will continue to increase. In NSW, icare did announce a staggered increase over three years when they first proposed to increase the average premium back in early 2021 expressly due to avoid a “knee jerk” reason or “rate shock” for businesses. Hopefully this approach will be considered and clients will be given more transparency in how the Regulator plans to implement these increases over the next few years.
From July 1, 2023, Victorian businesses will see an average contribution of 1.8% of remuneration under the scheme, up from the previous 1.27%. For companies with a $2 million payroll, this translates to an additional $12,000 per year and $60,000 for those with a $10 million payroll. However, speaking to our Insurer Partners, it’s important to remember that the Average Premium rate is a general figure only. The actual rate varies for individual employers based on their sector performance, size, and WC claims history.
The main contributing factor that will impact employers' premiums is claims experience. Employers that are experience rated with developing claims will most likely feel the brunt of these increases as they are not only being influenced by the industry rate performance but impacted by their direct claims performance. Therefore, it will be important to work with your Broker Partner and insurer to understand the direct impact on your premiums. The Government is proposing some changes to Scheme eligibility for mental injuries and the test to receive income payments beyond 130 weeks (two and a half years). However, some changes will require legislation or legislative amendments, that will need to be passed by Parliament before it can be implemented. This is in addition to the proposed mental health regulations which address psychosocial hazards within the workplace that were proposed in 2022 and are also under review.
The complexity of Workers’ Compensation cannot be overstated. It is often misunderstood and mismanaged, leading to avoidable premiums and uncontrollable claim costs. Prioritising prevention and effectively managing long-term risk exposures are critical in minimising loss and premiums.
The stark reality is that mental health injury claims are on the rise, and the costs associated with them cannot be ignored. As such, it is imperative for businesses to take proactive measures to minimise these risks and manage their exposure effectively.
Workplaces need to enhance their safety standards, provide comprehensive injury prevention training, and ensure prompt injury management practices, including mental health support services for employees.
Our dedicated Honan Workplace Risk team can identify opportunities to enhance your risk-management practices and monitor the effectiveness of these changes on your claims frequency.
We offer business risk exposure assessments via our gap analysis and work with you to develop key performance indicators, granting you greater control and oversight of your WC performance.
Through early intervention and injury management, we can reduce claim frequency, support your managers and return-to-work coordinators throughout the claim process, and arrange additional services to complement our risk management capabilities.
To learn more about how Honan can assist you with managing your WC program, feel free to get in touch with us directly.
Sharon Rutherford
Head of Risk Consulting
sharon.rutherford@honan.com.au
Jules Paolino
Client Manager - Risk Consulting
