Understanding WorkCover is Difficult

In February’s edition of the Builders Bulletin I briefly mentioned the jump in WorkCover Premiums paid by Victorian businesses for the 2023-24 financial year; being 42 per cent. At this point in time the scheme doesn’t seem to fit the needs of our state – not for employers, employees or the system itself. To this end, Victoria’s Parliament recently passed amendments they have termed, ‘WorkCover Scheme Modernisation’. They came into effect on the 1^st of April this year. Were you aware?

A summary of the changes on WorkSafe’s own website highlighted two major adjustments: new eligibility requirements for mental injury claims and an additional whole person impairment requirement for workers to continue weekly payments after the 130 week second entitlement period. An increased level of support for injured workers is also mentioned. Of course, the devil is in the detail.

“An increased level of support for injured workers is also mentioned.”

As I look to educate myself, I thought it might be worth sharing some of what I have learned. In the Victorian Government’s own words, “The changes will deliver a more contemporary and sustainable scheme to make sure it continues to support Victorian workers in the future.” (vic.gov.au/workcover-modernisation) Time will tell.

Let’s start with a bit of history.

In 1985, the Victorian Labor government, under the leadership of John Cain, set about realising its vision to create a socially and economically responsible workers’ compensation system. Until then, workers’ compensation had been underwritten by private insurers but soaring premiums and inadequate recompense for injured workers created a situation where all (most) parties recognised the need for a better arrangement. A new scheme was created, WorkCare.

The first six years were turbulent; underfunding was one of many issues. Jeff Kennett was elected and immediately sort to make the scheme financially stable, while at the same time reforming the payment system for injured workers, streamlining processes and attempting to make the entire undertaking more efficient. From what I have read, a fair observation of the scheme under the stewardship of its first conservative government would suggest the legislative reforms diminished workers’ rights and benefits but improved the scheme’s financial standing, claims rates and return‐to‐work quotient.

The Kennett Government also introduced ‘WorkSafe’, the body made responsible for managing Victorian workers compensation and launched a changed name for the scheme, ‘WorkCover’. The use of marketing under WorkCover played an important role in diminishing the ‘compo’ culture of the scheme’s early years. It is important to note, WorkSafe oversees the WorkCover scheme but is not responsible for managing individual claims. This task is undertaken by WorkSafe’s panel of insurance companies. Today, there are four: Allianz Australia Workers’ Compensation Limited, EML VIC Pty Ltd, Gallagher Bassett Service Workers Compensation Vic Pty Ltd and DXC Claims Management Services.

Over the decades different Federal Governments have attempted to harmonise Occupational Health and Safety legislation across Australia, yet there has been little willingness by the states to join forces. Unions, politics and a multitude of other factors have stood in the way.

Since 2010, WorkCover claim numbers have tripled, mostly due to injured workers remaining on compensation for longer periods, as well as a jump in mental health claims – the scheme was originally set-up for injuries of the physical kind. Mental injuries now represent 19 per cent of all claims but are greater than 50 per cent of the scheme’s total cost.

In 2023 payments made to injured workers exceeded the premiums paid by Victoria’s employers by $1.76 billion. Approximately 98,000 Victorians received weekly compensation, medical support, financial and other services through WorkCover over the 2022-23 financial year. Victoria’s taxpayers are required to ‘bailout’ the WorkCover scheme (correct entity?) annually.

“In 2023 payments made to injured workers exceeded the premiums paid by Victoria’s employers by $1.76 billion.”

Last May, most likely as a response to the increasing shortfall, the Victorian Government announced the average premium rate would increase from 1.272 per cent to 1.8 per cent for FY24. It should be noted, this figure is a ‘general rate’ only, with actual premiums for each workplace based on factors that include industry performance and the business’s claims history.

“(…) the Victorian Government announced the average premium rate would increase from 1.272 per cent to 1.8 per cent for FY24.”

For 2024/25 the average rate will be held. The lowest industry value will be 0.36 per cent (industries such as banking, insurance, architectural services, etc.) and the highest, 18 per cent (other non-metallic mineral product manufacturing). WorkSafe Victoria calculate individual industry rates by using the five policy periods prior to the preceding policy year. Their reasoning … it allows for a complete picture of the industry to be established (as information relating to the preceding policy will not be fully known until sometime after the end of the period) and to provide a stabilised measure of an industry’s cost to the scheme. The intention of the extended time frame is to recognise sustained change.

By way of example, Bowens and Timbertruss’s industry rate between 2020/21 to 2024/25 has adjusted from 2.08 per cent to 1.90, 1.89, 2.43 and 2.59 per cent. Since 2022/23 my company’s claims costs have reduced, while our premium has grown 37 per cent. Remember, the final calculation compares our performance to the industry. Bottom line, it has become incredibly expensive!

Over the past 6 years workers’ compensation schemes in other states, managed by one agency, (New South Wales, Queensland and South Australia) have not impacted businesses to the same degree as Victoria.

Image source: Workers’ compensation premium rates

As anyone who has a passing interest in this issue knows too well, the most effective way to reduce premiums is to stop the injury occurring in the first place. Bowens and Timbertruss acknowledge accidents are likely to occur, hence our focus on mitigation. Early intervention, proactive rehabilitation programs, a quick return to suitable duties and emotional support are critical.

As has always been the case, some workers are not satisfied, just as employers are upset with the costs and extensive investment in time WorkSafe imposes on their business. To this end, the scheme remains perfectly balanced: everyone is dissatisfied.