Icare’s plea to new government: 22 per cent premium increase needed to break even

The scandal-plagued state insurer icare has made an urgent plea to be allowed to make 330,000 employers pay an eye-watering premium increase of 22 per cent, equivalent to hundreds of millions of dollars.

Workers’ compensation premiums must rise sharply if the Nominal Insurer is to “break even” and remain financially viable, confidential icare briefing notes warn.

NSW Treasurer Daniel Mookhey, who led the opposition charge against icare, now has the troubled scheme under his watch.Credit: Kate Geraghty

For more than 330,000 employers, a 22 per cent increase in the next financial year, followed by staged rises to 2029 would amount to more than $719 million, underscoring the precarious financial position of an organisation Treasurer Daniel Mookhey has previously called “a basket case”.

The revelations put Mookhey and the new Labor government in a difficult position amid growing pressure to introduce unpalatable premium increases at a time when businesses are under pressure from rising interest rates, inflation and wages.

“The premium rate is currently 1.48 per cent of wages, which is 22 per cent below the operational break even premium of 1.91 per cent of wages,” one icare document, seen by the Herald, states.

The proposed staged premium increases would “materially close the gap between the operational break-even premium rate and the average premium rate”.

It says the primary driver of the shortfall is inadequate rate increases from 2014 to 2021, along with a high inflationary environment, market volatility and increasing psychological injuries across Australia.

As the largest public sector insurer in Australia, icare covers more than 3 million employees for wages and medical costs for workplace injuries. It collects more than $3 billion annually in premiums.

Icare and the State Insurance Regulatory Authority last year attempted to raise rates, which have been priced below break even since 2016, but were blocked by the former Coalition government.

The insurer was at the centre of one of the biggest underpayment scandals involving a government agency after a joint investigation by the Herald and ABC TV’s Four Corners uncovered mismanagement, deteriorating return-to-work rates and the underpayment of thousands of injured workers.

As shadow treasurer, Mookhey led the opposition attacks on the icare scandal, which he laid squarely at the feet of Dominic Perrottet, who oversaw the scheme’s set-up as treasurer in 2015.

“The system fell apart on Mr Perrottet’s watch,” Mookhey said in November last year.

Icare’s briefing documents, which have been shared with Mookhey, suggest about 310,000 employers now paying less than $30,000 in workers’ compensation will face an average increase of $654.

For more than 20,000 employers paying more than $30,000, the average increase would be $20,033, while for just over 1000 employers with more than $500,000 in workers’ compensation, the premium increase amounts to $97,492.

The documents also describe icare’s “ongoing focus on improving return to work outcomes”.

It follows revelations late last year that NSW Treasury raised serious concerns about icare’s financial sustainability and warned premiums 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 last 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.

The note, revealed by the Herald in November, 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”.

An icare spokesman said premiums were set annually in accordance with the regulator’s workers’ compensation market practice and premium guidelines.

“Insurance and Care NSW (icare) has not yet lodged its workers’ compensation premium filing for the 2023-24 financial year with SIRA and as such, it is not appropriate for icare to make any comment,” the spokesman said.

Sources close to the regulator say SIRA has not yet received icare’s premium filing but that it has until May to approve it.

A SIRA spokeswoman said it would assess icare’s premium filing for the 2023-24 financial year once it was lodged.

“SIRA will update the government on icare’s most recent financial situation and any potential business impacts after that assessment.”

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