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Terms of reference

SIRA Compliance and Performance Review of the Workers Compensation Nominal Insurer (NI) scheme

Commissioned by the Chief Executive, SIRA

Background

The Workers Compensation Nominal Insurer (NI) managed by Insurance and Care NSW (icare) is the largest insurer in the workers compensation system in NSW, accounting for approximately 65% of total active claims. The Nominal Insurer provides workers compensation cover for more than 320,000 employers and manages approximately 65,000 new claims each year. It collects $2.3 billion in premiums and pays $1.97 billion in claim-related costs. The success of this provider is critical to the success of the NSW workers compensation system.

The NI has a unique statutory, governance and regulatory structure. icare was established by the State Insurance and Care Governance Act 2015 in part to act for, and provide service to, the NI. icare operates as a Public Financial Corporation governed by an independent board of directors.

icare is required to report separately to the NSW Treasurer and has obligations to the NSW Government as a commercial government business. icare does not own, and is not legally responsible for, the financial liabilities of the NI. The NI does not require authorisation from the Australian Prudential Regulatory Authority and holds an unconditional license in accordance with s154B(1) of the Workers Compensation Act 1987 (1987 Act).

The Workers Compensation Insurance Fund is administered by the NI and its assets are subject to a statutory trust for the benefit of workers and employers (1987 Act s 154D(2)). Even though employers have no control over the management of the fund, they ultimately carry the financial burden of the scheme (as fund shortfalls are passed onto NSW employers through higher premiums and NSW Government through higher contributions).

The State Insurance Regulatory Authority (SIRA) is the government agency responsible for regulating the workers compensation system in New South Wales (NSW). SIRA takes seriously its obligations to hold insurers accountable for the services, experience and outcomes for workers, employers and citizens, for whom the workers compensation system in NSW exists.

Over 2018, SIRA has closely monitored and considered analysis of aspects of the compliance and performance of the NI scheme, including trends in liability valuations and costs, premium setting, operational reforms and risk management, return to work rates, data quality, customer complaints and concerns raised by business representatives, unions and other stakeholders.

In February 2019, SIRA will commence an integrated compliance audit and performance review including:

  • an audit of compliance with relevant guidelines including the Market Practice and Premiums Guidelines (MPPGs) and
  • a performance review in relation to claims management, return to work outcomes and other objectives and requirements under the legislation.

In establishing this Review, SIRA is exercising its authority and undertaking responsibilities under the State Insurance and Care Governance Act 2015, the Workplace Injury Management and Workers Compensation Act 1998 and the Workers Compensation Act 1987.

The Review is established, in particular, under the following legislative provisions:

  • Sections 23 and 24 of the State Insurance and Care Governance Act 2015
  • Sections 22 and 23 of the Workplace Injury Management and Workers Compensation Act 1998

This Independent Compliance and Performance Review is imperative given the materiality of the NI performance on the overall performance of the workers compensation system and SIRA’s responsibilities as regulator of that system.

Since 2015, NI premiums have moved from being set through the Government Insurance Premium Order to a principles-based file and write system under the Market Practice and Premiums Guidelines (MPPGs). The principles are:

Principle 1: Premiums are fair and reflective of risk
Principle 2: Balance between risk pooling and individual employer experience
Principle 3: Premiums should not be unreasonably volatile or excessive
Principle 4: Incentives for risk management and good claims outcomes
Principle 5: The premium basis needs to be consistent with the insurer’s capital requirements.

These Principles are supported by specific requirements, for example, under Clause 6.12 of the MPPGs:

“Where an insured employer is subject to being experience rated in accordance with section 6.7 of this Guideline, licensed insurers must ensure that the employer’s premium rate does not increase by more than 30 per cent from the previous policy year due to the employer’s own claim experience or due to amendments to an insurer’s premium methodology.”

Review - Terms of Reference

The review will be undertaken for SIRA by an independent expert, Ms Janet Dore and supported by independent actuaries Ernst and Young (EY) and authorised officers of SIRA.

Consistent with the objectives, functions, responsibilities and powers of SIRA under the State Insurance and Care Governance Act 2015, the WIM Act and the 1987 Act, the Terms of Reference for the review are to consult with stakeholders and undertake analysis of data to provide findings in relation to the NI’s compliance and performance, in particular to:

  • assess NI compliance with the MPPGs and identify any unintended consequences, risks and priorities for improvement in SIRA regulation of the premiums of the NI
  • identify the benefits and risks to the performance of the NSW workers compensation system arising from icare’s implementation changes to the NI operating model and supporting digital platforms
  • assess the NI’s performance in relation to return to work outcomes, claims management (including guidance, support and services for workers, employers and health service providers), customer experience and data quality and reporting.

The Independent Reviewer, Ms Dore, and EY will present on their independent findings to the SIRA Chief Executive and Board. The Independent Reviewer may also provide advice to SIRA on any other significant matters, emergent risks or opportunities detected during the review.

SIRA will receive regular progress reports and will reserve the right and responsibility to investigate and take action on any evidence of potential non-compliance with regulatory requirements identified by the review, in advance of the final report.

A draft report on the Review is expected to be provided to the SIRA Board in June 2019, with a final report outlining the findings of the Review by August 2019.

icare will be provided an opportunity to consider and respond to the draft report.