Nominal Insurer Audit Report - March 2023

1 Executive summary

The State Insurance Regulatory Authority (SIRA) conducted an audit of the Nominal Insurer (NI) between 24-30 March 2023 to ensure compliance and performance with legislative requirements regarding the information gathering process to determine the weekly benefit entitlement for workers.

The audit sample consisted of 50 workers compensation claims lodged between August and December 2022 with the NI, and proportional to each Claims Service Provider (CSP).

A stratified random sample of claims included 35 physical and 15 psychological claims were selected, assessing two key themes specific to determination of weekly benefits:

• compliance with workers compensation legislation and standards of practice, and
• case management practice including quality of evidence gathered.

SIRA’s audit tool (Appendix A) comprised of 18 criteria split across eight key areas:

• Information Gathering
• Pre-injury average weekly earnings (PIAWE) Determination
• Evidence used for calculations
• Methodology
• Case Management
• Interim PIAWE
• Internal review
• Customer service and conduct principle when managing dispute.

SIRA would like to thank icare and its CSPs for their participation and cooperation with this audit.

1.1. Summary of findings

For the stratified random sample of the claims audited, Table 1 reflects SIRA scored compliance with the legislation and conformance to standards of practice benchmarks. Table 2 notes measurement of conformance with case management practices including quality of evidence gathered.

Table 1- Compliance with workers compensation legislation and standards of practice

*  Workers Compensation Act 1987 (‘1987 Act’), Workplace Injury Management and Workers Compensation Act 1998 (‘1998 Act’), Workers Compensation Regulation 2016 (‘2016 Regulations’)

^ these criteria whilst require explicit conformance to timeframes, these timeframes are required by the Standards of practice not the relevant legislation.

Table 2- Case management practices including quality of evidence gathered

*  Workers Compensation Act 1987 (‘1987 Act’), Workplace Injury Management and Workers Compensation Act 1998 (‘1998 Act’), Workers Compensation Regulation 2016 (‘2016 Regulations’)

^# There were only 4 claims out of 50 that requested an internal review on the calculated PIAWE.

2 Introduction

SIRA regulates NSW mandatory insurance schemes including the NSW Workers Compensation (WC) scheme. The majority (approximately 83%) of claims in the NSW WC Scheme are managed by insurance and care NSW (icare).

icare is responsible for two entities in NSW workers compensation, the Nominal insurer (NI) and Treasury Managed fund (TMF) (NSW Government employees). icare outsource management of WC claims to Claim Service Providers (CSP) for both the NI and TMF. The CSP’s for the NI are Employer Mutual Limited (EML), Allianz, QBE and GIO.

Input from stakeholders such as Independent Review Officer, SIRA Complaints and Feedback team and findings from the previous audit were used to confirm the focus of the current audit.

3 Purpose

In September 2022, SIRA made a commitment to conduct quarterly audits of icare’s management of the NI, with the first of these audits completed in October 2022.  SIRA’s second audit of the NI in March 2023 focussed on the methodology, quality, and the subsequent application of the weekly benefit determination.

For the audit conducted in March 2023 SIRA wanted to ensure:

• Demonstration of compliance and performance relative to legislative obligations under:
  • S 33, S34, S36, S37, S42 and S43 of the Workers Compensation Act 1987 (1987 Act).
  • S78, S79, S80 , S267, S287A and S287B of the Workplace Injury Management and Workers Compensation Act 1998 (1998 Act).
  • Pt 4 Div. 1 (cl 8AA & 8AB) Pt 4 Div. 2 (cl 8A-8EA) Pt 4 Div. 3 (cl 8F-8G) Pt 4 Div. 4 (cl 8H) Pt 4 Div. 5 (cl 8N) Pt .8 Div. 2 of the Workers Compensation Regulation 2016 (2016 Regulations)

• Application of Standards of practice 3, 7, 8 and 9
• Claims data is accurate and reflective of legislation, regulations, guidelines and Standards of practice
• Adherence to SIRA’s Customer Service Conduct Principles (CSCP)
• Guidewire functionality and speed for the user.

4 Scope

The March 2023 audits were conducted on site at each CSP using icare’s ‘Guidewire’ claims management system. SIRA reviewed selected claims lodged with icare between August 2022- December 2022.

4.1. Audit criteria

SIRA’s audit tool (Appendix A) comprised of 18 criteria split across eight key areas:

• Information Gathering
• PIAWE Determination
• Evidence used for calculations
• Methodology
• Case Management
• Interim PIAWE
• Internal review
• Customer service and conduct principle when managing dispute.

4.2. Review period

The audit assessed actions on the claim file for the first 13 weeks from Date Entered in Insurer System (DEIS). SIRA reviewed all available evidence on file regarding the methodology, quality of evidence, information gathering and application for the weekly benefit determination.

Where one of the following was identified in the first 13 weeks of the management of the claim, SIRA reviewed the claim past this point to assess the process and decisions in line with requirements:

• reimbursements of weekly benefit payments to the worker as a result of a re-calculated PIAWE,
• request for an internal review of the PIAWE,
• a subsequent work capacity decision on PIAWE,
• the requirement for a 13-week step down letter.

4.3. Audit sample

The selected audit sample was a stratified random sample comprised of 35 physical and 15 psychological claims. The claims were selected from cohorts of claims meeting at least one of the following criteria:

• weekly benefits paid in the first 13 weeks,
• PIAWE changed in the first 13 weeks (potentially an interim PIAWE applied and then recalculated. This included the minimum PIAWE),
• an accepted previous claim, with weekly benefits paid, lodged in the last 12 months.

The sample selected for each CSP was proportional to its NI market share for the latter period of 2022.

5 Audit findings

The audit criteria have been broken down into two key areas:

• compliance with legislation and Standards of practice
• case management practice including quality of evidence gathered.

Whilst the stratified sample had a division of claims with either physical or psychological injuries, within the scope of this audit there were no demonstrable difference in the findings noted in the management or audit scores for these two cohorts of injuries.

5.1. Compliance with legislation and Standards of practice

5.1.1 Information Gathering (Criteria 1, 2 and 9)

Claims managers are required to request and gather accurate wage information from all sources of employment; use evidence gathered in line with legislative requirements; make decisions in a timely manner and communicate those decisions to the injured workers/ employers in a timely manner and in way that clearly demonstrates the method by which a weekly benefit entitlement has been determined.

Once an injury is notified to the insurer, it is expected that the CSP confirms with the employer and worker within three working days, information that will assist with determination of PIAWE as per Standard of practice 7.1 and 7.2 benchmark.

In the audit sample, contacting the employer (criterion 1) to obtain PIAWE information scored 96%, in line with the benchmarks in Standard of practice 7.1. Evidence confirming any potential secondary form of working income (criterion 2) was recorded on 66% of claims audited.  It was noted as a standard question in early contact templates but was not always completed on file.

Standard of practice 7.2 places the expectation on the insurer to inform the employer and worker that all of the information required to undertake a complete PIAWE calculation should be provided to them, as soon as possible. In cases where an interim PIAWE is determined, it is the insurers responsibility to continue seek further information from both the employer and worker to establish an accurate weekly entitlement.

In the audit sample, where an interim PIAWE was applied, it was observed that almost a third of these claims did not meet Standard of practice 7.2 (68% compliance). On files that failed to comply, a lack of urgency in the case manager following up wage records was noted. Several of the claims audited in this cohort, had a minimum PIAWE initially applied, and subsequently had a determination of entitlement to the statuary maximum rate. In some cases, this delay lasted 8 weeks and in three cases was not resolved past 13 weeks.

5.1.2 PIAWE Determination (Criteria 3 and 17)

To comply with sections 267 and 275 of the 1998 Act an insurer needs to determine PIAWE within seven days of the notification of injury (Criteria 3). In the audited sample, 92% of claims determined a PIAWE within seven days. For claims that reached 13 weeks, 86% correctly calculated the PIAWE to be applied at the 13-week step down. Non-conformances were due to failure to issue a letter to explain the step-down to 80% of PIAWE.

5.1.3  Interim PIAWE (criteria 10, 11 and 12)

Standard of practice 7.3 requires an insurer, in the instance of an interim PIAWE, to calculate a subsequent PIAWE within five days of receipt of further requested information (criterion 10).

The audit sample noted a compliance of 61% for this criterion. In one audited claim, it was noted that an injured worker declared secondary employment late which should prompt the insurer to review the interim PIAWE. Despite the declaration by the worker, the interim PIAWE was still not reviewed.

The audit noted that 52% of the claims where a subsequent PIAWE was calculated a work capacity decision was issued within five working days. There were inconsistencies on which letter template was used to communicate this information. In some cases, CSPs used the liability acceptance letters to update the PIAWE amounts while on others the work capacity decision templates were correctly utilised in line with Standard of practice 7.

Pt 4, Div 5 Cl 8N of the 2016 Regulations require an insurer to make a payment within 14 days after making a decision to increase weekly payment to the worker (criterion 12). Conformance to this criterion could be demonstrated by wage records on the system and/or letter to the worker.  The audit sample noted a compliance of 63%. The Regulation stipulates a penalty for non-compliance.

5.1.4  Internal Review (Criteria 13, 14 and 15)

In the audited sample only four out of the 50 claims requested an internal review of their PIAWE determination (criteria 13). Of these four requests, three worker’s PIAWE were revised (criterion 15). The requirement to have the request for a PIAWE review assessed within 14 days met 50% compliance (criterion 14).

Key Findings

1. Claim contact with the worker did not capture if the worker had secondary employment, a previous claim or a concurrent claim.
2. The use of minimum PIAWE of $155 in contravention of Cl 8AB of the 2016 Regulation was noted in several claims managed by EML. In all but one case the PIAWE was increased by a significant amount, often after a delay of several weeks, adversely affecting these workers. In the remaining matter the $155 was correct, as the default PIAWE. On the day of the audit EML advised the team that they were aware of this practice, and they demonstrated their practice and procedures have been updated to discourage the use of $155 when making interim PIAWE.
3. The letter template to the worker/ employer that confirms PIAWE (often provisional/full liability letter) is not transparent in providing the complete PIAWE calculation to the worker.
4. Non-conformance was observed when case managers failed to make a subsequent PIAWE calculations within five working days of receipt of updated wage information.
5. In the audit sample it was noted that there were inconsistent practices between CSP’s in the use of either liability letter templates or non- adverse WCD templates when updating PIAWE.

5.2. Case management practices including quality of evidence gathered

Whilst case management has a broad scope, for the purposes of this audit it was used to assess the quality of case manager contact in seeking evidence to calculate PIAWE, where that information was not available frequency and rigour with which that information was sought and communication of any determination of PIAWE and weekly benefits to the worker and employer.

5.2.1.  Evidence used for calculations (Criteria 4 and 5)

In accordance with clause 2, Schedule 3 of the 1987 Act, when calculating PIAWE an insurer must consider all relevant information and, if all information is not available and a PIAWE agreement is not obtained, an interim PIAWE is to be applied. Where a worker’s PIAWE is less than any minimum amount prescribed by the regulations, the amount of the worker’s PIAWE is taken to be that minimum amount. The relevant earnings period and earnings are to be adjusted in line with the regulations to best reflect the workers weekly benefit entitlement.

To meet legislative requirements, the insurer needed to demonstrate all available evidence was used to calculate PIAWE.

Audit noted that 82% of the claims assessed were able to demonstrate via file notes, the range of evidence that was considered to calculate PIAWE (criterion 4). Non-conformances were noted due to application of minimum PIAWE being applied despite contrary evidence on file that demonstrated a rate higher than minimum PIAWE could be applied. Of note, the auditors were referred to a new revised processes and procedures to limit application of the minimum PIAWE of $155 going forward.

To meet legislative requirements, communication to the worker should adequately demonstrate, where required, the insurer had reviewed and adjusted for relevant earnings and period. 30% of claims audited did not accurately reflect the change in these parameters in communication to the worker and employer (criteria 5). Specifically, it was evident template letters to the worker and employer were not updated when the relevant earning period/ earnings were adjusted.

5.2.2. Methodology (Criterion 6)

Standard of practice 3.2 and 3.5 sets expectation with the insurer to demonstrate to both the worker and the employer the methodology used in calculating PIAWE, and options open to the worker if they disagree.

74% of the sample audited provided sufficient information to explain how the PIAWE was calculated. The most common reason for non-adherence was:

• misrepresentation of the relevant earning period used in the letter to the worker/ employer.
• misrepresentation of gross earnings;
• where an interim PIAWE was applied, the communication was often deficient in stating what information was required to finalise the calculation.

There is an opportunity for revision of the letter templates used to improve the clarity of the information provided to workers and employers.

5.2.3. Weekly payments (Criterion 7)

Standards of practice 3.2, 3.5, 8.1, 8.2 and 8.3 place the onus on the insurer to inform the worker and employer of who is responsible for making weekly payments to the worker; arrange for tax to be paid on behalf of the worker and inform the worker once weekly payments have commenced.

This question scored 94% conformance. Failure to comply was observed in instances where template letters were not updated to reflect responsibility for weekly payments.

5.2.4.  Case management (Criteria 8 and 16)

For the purposes of this audit Case management assessed:

• how well the case manager explained to the worker and employer the utilisation of an interim PIAWE and
• the timeliness of informing the worker/employer of the 13-week step down.

On 94% of the 31 claims where an interim PIAWE was applied, there was sufficient evidence providing an explanation for the utilisation of interim PIAWE (criterion 8).

Standards of practice 9.1 and 9.2 requires the insurer to advise both the worker and the employer at least 15 business days before the effect of a potential reduction in the weekly payment amount as a result of Section 37 of the Workers Compensation Act 1987. This was assessed by way of letters and file notes on CSP system.

86% of applicable claims adequately recalculated the entitlement at the 13-week stepdown. However, 15 or more business days’ notice was only provided in 50% of these files audited (criterion 16).

6 General observations

SIRA conducted this audit via direct access to the Guidewire platform at each CSP’s Sydney offices. Each CSP uses an identical version of Guidewire to manage claims on behalf of the NI.

Below are observations made by SIRA while conducting the audit of the NI.

6.1. Guidewire

Guidewire is a web-based claims management system that stores all claim and policy information (note SIRA did not look at the policy section of Guidewire as part of this audit), including data coding and documentation attached to each claim.

The audit teams experience of Guidewire was seamless at the time of audit in March 2023. icare had informed SIRA that it had made changes to the Guidewire system since the previous audit, and it was evident that those changes led to a better claims centre experience for the audit team in March 2023.

6.2. Templates

Guidewire has all templates inbuilt that CSP’s are required to send to stakeholders while managing a claim. These templates populate applicable information depending on the template selected. All the documentation and templates are created by icare and are generated/completed by each CSP and sent to stakeholders with icare logos.

Many of the non-conformances identified in the communication of PIAWE and subsequent step downs can be traced back to the template letter. These templates rely on the case manager to adapt the letter to the circumstances of the claim. In communicating PIAWE determination in the liability letters, there is an opportunity to clearly explain the methodology used. These templates require a more in-depth demonstration of how a PIAWE amount was calculated, what evidence was used, and if adjustments for the relevant earning period and/or earnings was made. Similarly, greater clarity in the calculation can be provided in the 13-week step down template.

7 Future audits

SIRA’s next audit of the NI will be conducted in July 2023.

8 Appendix A - Audit tool recommendations