NSW businesses face $1 billion hike in workers comp fees

NSW Treasury has raised serious concerns about the financial sustainability of scandal-ridden workers compensation scheme icare, warning premiums paid by 333,000 businesses would need to be 33 per cent higher in 2025 than they were in 2021 to cover the shortfall.

A confidential briefing note prepared in August this year by Treasury for Treasurer Matt Kean and Finance Minister Damien Tudehope said raising premiums would result in costs to employers not seen since the mid-2000s.

NSW Treasurer Matt Kean.Credit: Janie Barrett

A 33 per cent hike in premiums in staged increases to 2025 would cost employers as much as $1 billion more in 2025, based on the $3 billion paid by employers each year.

The note said the financial position of the scheme was “now equivalent to the situation in the early 2010s when the scheme was considered to be in financial crisis”.

The continued deterioration in icare’s finances comes amid revelations last week that icare’s board granted pay increases to 116 of its executives, including chief executive Richard Harding, making him one of the state’s top paid public servants, earning more than $1 million a year.

Icare chief executive Richard Harding, one of the top-paid public servants in NSW, will receive a $247,000 pay rise to take his salary over $1 million.

NSW Shadow Treasurer Daniel Mookhey described icare’s finances as catastrophic and said the agency is a basket case.

He said employers who pay for icare couldn’t afford the increase in premiums that were about to hit them.

“The system fell apart on Mr [Dominic] Perrottet’s watch,” he said. “If the government is re-elected, as night follows day, they will try to eject even more injured workers from the scheme.”

Icare was set up by Perrottet in 2015 when he was Minister for Finance to replace the troubled WorkCover scheme. Thousands of people were cut from payments erasing the deficit.

The chief executive of workers’ compensation regulator State Insurance Regulatory Authority, Adam Dent, said he wrote to Treasury in August to draw their attention to concerns raised with icare regarding the ongoing decline in its financial performance and the adequacy of its investment strategy.

“System costs are rising without a corresponding improvement in recovery outcomes, and the financial performance of the scheme is deteriorating,” he said.

The scheme was set up by Dominic Perrottet when he was the state’s finance minister.Credit: Sydney Morning Herald

The letter to Treasury Secretary Paul Grimes, obtained by this masthead, said SIRA would conduct an audit review into the case management of injured workers.

Icare manages the NSW workers’ compensation scheme, known as the Nominal Insurer, which covers more than 3 million employees for weekly payments and any medical treatments they require if injured at work. Employers are legally required to have a workers’ compensation policy as a safety net for workers. In NSW, most businesses use icare.

The Treasury briefing note said increasing premium levels would mitigate the need to “reform” injured worker benefits, which is what happened in 2012.

“In 2023 the forecast increase in premiums 2021-2025 is 33 per cent.”

Part of the Treasury briefing note on Icare

“The government stated that the 2012 benefit changes were needed to avoid premiums rising unmanageably,” the note said. “Premium rises were forecast to be 28 per cent. In 2023 the forecast increase in premiums 2021-2025 is 33 per cent.”

But it warned a forecast financial improvement was dependent on premium increases “that may not be achievable”. This year Tudehope scuppered a proposal to increase premiums by 15 per cent, capping the rise to 2.9 per cent.

“This was done to ensure affordability of premiums for businesses, in the context of current economic challenges,” Treasury said in the note.

In response to questions about the note, Tudehope said decisions on premiums were made on an annual basis informed by advice from icare and the prevailing economic conditions at the time.

He declined to comment on any benefit reforms saying “the government’s priority was to help injured workers and get them back to work”.

“I have confidence that John Robertson, chair of icare, and his management team are making the necessary reforms to improve performance through better return to work rates, internal cost savings and investment management,” he said.

In a statement icare said there were multiple streams of work under way to “strengthen” its culture, governance and accountability and bring greater focus on customer outcomes.

“The main workers compensation schemes are fully funded and able to meet their long-term liabilities,” the statement said. “We continue to operate in an uncertain economic environment, and icare’s financial performance has been significantly impacted by recent volatility in global investment markets.”

It said the Treasury note referring to a 33 per cent increase in premiums was an effective rise of 23 per cent. “The 33 per cent is total premium collected, which includes the wage growth and jobs growth,” the statement said.

The latest revelations come more than two years after a joint investigation by this masthead and ABC TV’s Four Corners uncovered mismanagement of the scheme including the underpayment of wages to thousands of injured workers in one of the biggest underpayment scandals involving a government agency.

The insurer has since announced it would repay $38 million to 53,000 underpaid injured workers.

The scandal triggered two separate inquiries, one by retired NSW Supreme Court judge Robert McDougall QC, and the other by the NSW upper house’s law and justice committee and changes to the board and senior executives, including the CEO.

The Treasury note was prepared in response to a “statement of business intent” prepared by icare on its business outlook for the coming financial year. It recommended Kean and Tudehope support icare’s plan, which includes a focus to “foster an open, constructive and accountable culture” and “deliver better outcomes for customers.”

The note cites a range of factors adversely impacting icare’s financial position including deteriorating return to work performance, medical inflation and premiums priced below break even since 2016.

Icare also manages the Treasury Managed Fund (TMF), which oversees a workers’ compensation insurance fund for police employees, nurses, prison guards and teachers.

The note says the TMF will need to increase contributions 27 per cent due to continuing deterioration in claims. In June, this year the government injected $1.9 billion into the fund. The latest cash injection come two years after NSW Treasury warned the insurer would require billions in additional funding to prevent it falling into deficit, taking the overall bailout payments it has received to almost $4 billion.

Icare’s troubles date back to 2018 when it moved to a new computer-driven claims model that was supposed to make claims management more efficient through automation. It cost hundreds of millions of dollars to implement and caused a lot of headaches including workers struggling to get treatment owing to the lack of human contact in the early days of an injury.

This led to a significant decline in return to work rates, a crucial indicator of how workers’ compensation schemes are performing.

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.