Driving down workers comp costs

“There is a potential for unfunded liabilities to blow out and for schemes to increase their premiums to recoup their losses,” explains Anderson, referring to the financial stability issue.

“Business is also increasingly aware of the need for early intervention and early return-to-work, however some schemes limit the capacity of employers to even contact injured employees, so weeks can often go by before return-to-work options are even discussed.”

Anderson blames overenthusiastic legislators, bureaucrats who write the administrative rules for claims management and sometimes even the insurers or the occupational rehabilitation industry for preventing early return-to-work.

“The most important policy issue that needs to be solved is the need for a national workers compensation structure for employers who operate across state lines,” says Anderson.

Self-insured employers who want to join the Comcare national scheme have to apply to the federal workplace relations minister for a national licence. The tight criteria for joining Comcare make access for many organisations impossible. Since Joe Hockey took over this portfolio on 30 January this year, his spokesman says, “He has given approval to a number of companies to join the national scheme.”Human Resourcesmagazine believes this number to be just two.

“Because it has the highest benefits payments, the financial viability of the Comcare scheme may be threatened if high-risk industries are brought into it,” cautions Anderson.

Self-insurance

Quite a few large national employers have decided to self-insure under the Comcare scheme. However, because this removes revenue from the state-based schemes, the state schemes often oppose the application. In April 2007, the Victorian Government lost a High Court challenge when it tried to prevent Optus from being issued a national licence. Optus estimated it would save around $2.2 million annually under the national scheme (see box).

CSR, the sugar and building products business has a long history of self-insurance in state jurisdictions. Like many national companies, it has been closely observing the developments regarding Comcare.

David Miller, legal counsel and manager of workers compensation for CSR explains that the company has self-insured in NSW since 1926. “Where we are able to self-insure, we do, but in some states, we don’t have the minimum number of staff to do so,” he explains.

CSR charges each of its six businesses a workers compensation “premium” which covers liabilities and administration costs. Miller says that the last premium rates charged to its businesses averaged 2.0–2.5 per cent of payroll. Businesses that incur higher costs get charged a higher premium. “If the business sees the financial as well as human cost of injuring people, it focuses their minds on workplace safety,” he says.

Kelvin Genn, group risk manager Asia-Pacific for Compass Group, says that, “Philosophically, we are a self-insurance company. Globally, we self-insure on property and public liability, but manage workers compensation on a country by country basis”.

Compass is a global commercial catering and support services (cleaning, light maintenance, patient assistance and security) company. It has around 12,000 employees in over 700 locations across Australia. It runs 70 per cent of Australia’s mining base camp operations and employs staff to run catering and other services in hospitals countrywide.

Compass made a decision to not join the state schemes in Australia after doing a cost-benefit analysis of the licence fees, administration and auditing required. “It didn’t make commercial sense, so we have pursued as close a process to self-insurance as we could,” says Genn.

As part of a pilot program, the company is one of three that self-administers its workers compensation process in NSW. Compass manages most of the transactions of its claims internally and is audited by WorkCover. It is also one of a small number that self-administers in WA – a state that is strategically important because it constitutes 60 per cent of Compass’ revenue base and is a growing part of their business. In WA, Compass manages all claims and is audited by GIO.

“We are replicating the practice and process of self-insurance, operating within the regulated and underwritten schemes. We are responsible for the management of claims without the balance sheet risk of being a self-insurer,” says Genn.

Investment in safety management

Both CSR and Compass have many employees working in manual labour roles. Both have also made significant investments in safety management. One of the drivers for these investments has been to lower the workers compensation costs to the company.

Over a quarter of CSR’s employees are over 50. “Sprains and strains take longer to heal in an ageing workforce and years of manual labour can take its toll,” says Miller. The organisation has site-based return-to-work coordinators and a national injury management adviser, as well as state-based workers compensation teams. Return-to-work plans are developed in conjunction with medical providers.

Compass sees its significant investment in safety management to be a competitive advantage when bidding for contracts. “A great safety record generates far lower on-costs for labour and far lower risk for customers,” explains Genn. He says that a mining company that hires contractors like Compass employees cannot contract out risk. They will always be responsible (and fined) for any breaches of OHS, even though Compass pays for the employees’ workers compensation.

Genn says that every meeting at Compass globally starts with safety as the first item on the agenda. “Safety is non-negotiable at Compass. The safety imperative will take precedence in commercial decisions.

Metrics

Premiums have decreased at Compass by 70 per cent in the last 10 years. Although everybody in safety measures lost time injury (LTI) rates, frequency and severity, Genn says those figures don’t measure the total loss profile to the business. Instead, over the course of every trading month, they measure the cost for lost earnings as a percentage of payroll for all injuries where workers are paid a benefit for the time they are not working. “This gives management a true measure of costs and whether things are improving or getting worse,” he says.

They have also created a formula that calculates a ‘return-to-work index’, which is a measure of how effectively the company gets people back to work quickly.

CSR uses the premium rate it charges its businesses as one measure of performance. Miller says that the 2.0–2.5 per cent of payroll rate has been consistent in the last few years, but higher before then. The reducing premium rate reflects improving safety performance. Recordable injuries fell by almost 8 per cent last financial year. CSR also measures return-to-work and durability. 90 per cent of injured employees return to pre-injury duties within six months.

Advice

Miller says that CSR has proven that you can improve workers compensation performance by investing in safety. “Workers compensation does not take care of itself – you need to take an active interest in it. For companies with the scale to self-insure, they should consider it,” he says.

“You should never treat workers compensation as an insurance, because it is not,” says Genn. “It is a levy. It is not a fixed cost, but a business expenditure that can be reduced by investment [in safety].”

Comcare self-insurance scheme

On 4 April 2007, the High Court upheld the validity for licensing for "eligible corporations" under the SRC Act. This means that private sector corporations who meet the eligibility requirements of the SRC Act can opt-out of state workers' compensation schemes and, instead, self-insure under the Commonwealth workers' compensation scheme.

Optus argued that it met one of three criteria to be eligible to apply for a licence. Arguments put by the state of Victoria (supported by Queensland, NSW and SA) to prevent Optus from opting out of its state scheme, were all rejected.

Self-insuring under the umbrella of the Commonwealth scheme may be attractive not only to streamline the management of legal risk, but also as a cost saving initiative.

Summary of a legal update, by Aaron Anderson from Deacons