Written by Workers Compensation Report editor Peter Angelopoulos
Return To Work SA (RTWSA) has proposed the minimum financial guarantee for the state’s self insurers should be raised from $840,000 to $4.5m.
It noted that was close to APRA’s $5m in capital requirements for general insurers.
RTWSA’s proposed policy, distributed to stakeholders, also flagged changes to minimum employee requirements (500-1,000 employees) and discretion for RTWSA’s board to determine if a prospective business was ‘fit and proper’ to hold a licence.
Self Insurers of SA Inc (SISA) claimed the proposals were “economically reckless”, would cost jobs, potentially lead to plant closures and were designed to implement a “high barrier” to self-insurance (below).
RTWSA’s proposed changes to the RTWSA policy on self-insurance said the current $840,000 bank guarantee was “manifestly inadequate compared to the liability implications of just one catastrophic injury which has an average liability of $4.3m but may have far higher liabilities than this”.
There were “examples in the scheme of where this liability is as high as $40m”, the policy paper said.
RTWSA CEO Greg McCarthy told WCR the agency had circulated a draft policy to self-insured employers for feedback.
“The constructive feedback received so far has highlighted a number of issues that we will take into consideration, and this will inform our thinking on what changes will need to be made to the policy.”
McCarthy said RTWSA would “consider the impact on individual self-insured employers and the economic conditions for SA more broadly”.
“We will continue to talk to stakeholders and consider all submissions we receive. We have assured stakeholders we are listening. The closing date for submissions is [March 11],” he said.
In its policy paper RTWSA said “the existence of re-insurance protects the self-insured employer from the costs of claims beyond a certain [deductible] (typically between $500,000 and $1m) and reduces the likelihood of default from high value claims”.
But reinsurance did not protect RTWSA “if the employer becomes insolvent, and will not protect RTWSA if the serious nature of an injury does not become evident until long after a default event and when the business may no longer exist”.
RTWSA “acknowledges this is a significant increase in the minimum guarantee ($4.5m), but one which is proportionate to the level of risk associated with becoming an insurer under the RTW Act 2014”.
The paper said “if the proposed policy is implemented larger self-insured employers are expected to have lower costs and bank guarantee-related balance sheet impacts than under the current regulatory framework”.
“RTWSA understands that smaller self-insured employers would experience increased costs and balance sheet implications associated with the increased minimum level of the bank guarantees.”
“While acknowledging the cost and balance sheet impacts for a number of the employers that choose to self-insure, RTWSA is of the view that these changes are essential to providing for an affordable and sustainable scheme that is able to deliver its objectives for all employers and workers in SA.”
SISA claims proposals are ‘contradictory, disappointing’
SISA’s executive committee submitted the RTWSA policy paper (above) distributed to stakeholders was “very disappointing in terms of the proposals themselves, the quality, veracity and credibility of the justifications used to support them and the way they were articulated”.
It said that “feeling is generally reflected among our members, some of who[m] are also members of other significant business associations that may take an interest in the economic impact of the proposals”.
Headcount argument ‘without basis’: SISA
SISA’s exec ctee’s (above) submission to the review said an “early assessment” of the proposals based on member input indicated the proposals would “generate significant cumulative job losses and impose major financial burdens on the affected businesses”. “There is even talk of options such as plant closures, offshoring and the like. To this extent we regard the proposals as not only unjustified … but myopic and economically reckless from a state economic standpoint.”
SISA said the “overall effect” of the proposals would include increased costs for the affected companies, translating to job losses and possibly business closures and expose workers to lower standards of RTW and safety management. “The risk of catastrophic claims among self insurers is very small and, despite the incorrect claim made in the paper, policies of reinsurance will continue in effect for events incurred during the policy period even if the self insurer closes.” SISA said “shortfalls” after that would be small and could easily be covered by the Self Insurer Insolvency Contribution Aggregate (SIICA) fund held by RTWSA.
SISA’s executive ctee claimed the policy proposals paper was “contradictory”. “It tries to justify raising the minimum guarantee with an inexplicable assumption the RTW Act has materially increased the risk via the serious injury provisions.” SISA said those injuries “have always existed, they weren’t created by the new Act”. But if the RTW Act increased risk, “why did the corporation’s unfunded liability disappear overnight when the new Act commenced?” its paper asked.
SISA also claimed the arguments about headcounts were “entirely” without basis. “The corporation wants to have a high barrier to self-insurance but won’t say it.” “Parliament moved in 2008 to remove the mandated headcount from the then Act and it was not re-introduced in the 2014 Act.” Instead, the number of employees is one of a wide range of things to be taken into account and cannot alone be used to reject an application, SISA said. “The Board wants to alter the operation of the Act via a policy document, something it lacks the power to do.”
“In terms of potential impact on the workforce, these changes would inflict significant extra cost on the 27 employers mentioned in the paper.” SISA submitted that if each had to shed jobs to cover the increased cost, then a large number of jobs would be lost overall. “The statement at the end of the paper that there are no known effects on workers entirely lacks vision and understanding of what this paper implies,” SISA submitted.
(This story first ran in Workers Compensation Report 1053, 23 February 2016)
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