Victorian Employers with Small Claim Costs Set to Reap Benefits from 2023/24 Industry Rate Surge?

The policy period for 2023/24 is characterised by uncertainty due to changes in the methodology used to calculate premiums. These changes will have an impact on the premium calculation, necessitating the implementation of special rules to mitigate the effects of these changes. Employers who have WorkCover claims that are sensitive to premium costs for the 2023/24 policy period, particularly those with minor claim costs, would more likely require capping. A case study illustrating this situation is provided below.

Expected Rise in Industry Rates Offers Advantages to Victorian Employers with Minimal Claim Costs in 2023/24.

Recently, WorkSafe Victoria has implemented significant changes to the management of workers’ compensation premiums and claims, which have important implications for employers and workers in Victoria. If you anticipate being affected by these changes, we encourage you to reach out to myWorkCover. They are offering a complimentary and confidential health check on your policy, which can help you ensure compliance and explore potential avenues to reduce your premiums.

The upcoming year, 2023/24, brings positive prospects for Victorian employers, particularly those with small claim costs. Anticipated industry rate surges promise several benefits, allowing businesses to thrive in the dynamic economic landscape. This case study analyses the implications of these projected changes and outlines potential advantages for Victorian employers.

To better understand the dynamics of premium rates, it is crucial to grasp the concept of claim costs and their impact on insurance premiums. Claim costs refer to the expenses incurred by an insurer due to policyholders’ claims. These costs, when aggregated over a specific policy period, influence the determination of premium rates. In the case of smaller claim costs, employers experiencing such costs, along with a significant industry rate increase, are more likely to have their premiums capped, giving them precedence in the 2021/22 policy period.

For further information and assistance, you can refer to the resources provided by myWorkCover website.

• 2023/24 WorkSafe Victoria Workers’ Compensation Renewal Guide

• Statistical Case Estimation (SCE): A Comprehensive Guide to WorkSafe Victoria SCE Model & Premiums

Recommend reading: Employers in Victoria should prioritise understanding Statistical Cas Estimation (SCE) as a crucial tool for managing claims costs, assessing safety interventions, and complying with workers’ compensation arrangements. This guide provides an overview of SCE’s concepts, methodology, applications in claims management and impact on premium calculations.

• 2023/24 New Gazette Rules: 75% Capping and 1.8% Industry Rate - How Will Your Premium Be Affected?

• What Effects Do WorkCover Claims & Other Factors Have on Your Premium & Advice?

These sources will provide you with comprehensive details about WorkCover insurance, premium calculations, and other relevant information.

Key Amendments in 2023/24:

1. The minimum premium:?$330 plus charges, an increase from $227 plus charges.
2. Increase in Industry Rates:?WorkSafe Victoria has announced an increase in industry rates, which will impact the WorkCover bill starting in July 2023. Most industries will have a significant increase in their premium up to more than 150%. Labour hire services have increased by 145% while others such as House Construction have an increase of 32%.
3. Premium Capping Increase: Premium capping is the maximum limit on the amount an employer needs to pay for workers’ compensation premiums. The search results state that premium capping has increased from 30% to 75%. This means that employers’ premium payments are limited to a maximum of 75% of the potential premium amount.
4. Claim Capping Increase:?Claim capping refers to the maximum limit on the amount of compensation a worker can receive for a claim. According to the search results, the claim capping has increased from $438,300 in 2022/23 to $450,500 in 2023/24. This means that the maximum compensation amount for workers’ claims has been raised.
5. Increase in Premium Percentage:?The search results mention that organisations will experience a 42% increase in premiums paid. The premium percentage paid by employers will rise from 1.272% to an average of 1.8% of the remuneration. This increase in premiums aims to ensure the ongoing financial sustainability of the WorkCover Scheme.
6. Changes to Workers’ Compensation Test:?The test for workers receiving WorkCover weekly payments beyond two-and-a-half years will be changed. To conform with the policies of other states and territories, WorkSafe will modify the assessment for individuals who have been receiving weekly benefits for two and a half years. The new assessment will more objectively evaluate the extent of physical and mental impairment in conjunction with work capacity. Following the implementation of this change, a Whole Person Impairment of over 20% will be necessary, in addition to the capacity test, for a worker to continue receiving weekly benefits after two and a half years. Return to Work Victoria will offer injured workers various options for finding appropriate employment, such as training and incentives for job placement.
7. The sizing factor value for 2023/24:?the sizing value increased from 600,000 to 1,700,000 and is used in the calculation to determine the premium rate for the industry. This value is a key factor in determining the premium rate, and it is used in conjunction with other factors such as the industry classification and the estimated wages of the business. The sizing value is set by the relevant authority and is subject to change over time. The sizing value of 1,700,000 is a crucial component in this calculation, as it helps to standardise premium rates across different industries and ensure that businesses are paying a fair and appropriate amount for their workers’ compensation coverage. The formula: Size adjustment factor = XT ÷ (XT + sizing value), where XT is the sum amounts produced by applying the formula?IR (industry rate) x RCOV (remuneration of coverage)?to each experience period workplace of the employer for each relevant period of coverage.
8. Eligibility for Stress and Burnout Claims:?Harassment, bullying and post-traumatic stress disorder will remain on the scheme.?Workers experiencing stress and burnout will no longer be eligible for weekly benefits. Instead, they will receive provisional payments for 13 weeks to cover medical treatment. This change may reflect a shift in the eligibility criteria for mental health-related claims.
9. Splitting of Industry Classifications:?WorkSafe Victoria has further categorised industry classifications between the public and non-public sectors. Public industries are typically associated with higher industry rates compared to private industries. The growing list of industries now includes Primary Education, Secondary Education, Special School Education, Combined Primary and Secondary Education, Ambulance Services, Other Social Assistance Services, Hospitals, Technical and Vocational Education and Training, Rail passengers, Correction/Detention Services, and General Insurance.
10. Indexation to Medical and Like Services:?The employer initial liability threshold amount for?medical and like services effective 1 July 2023 will increase from $763 in 2022/23 to $824 for 2023/24.
11. Indexation to maximum entitlements to weekly payments:

• For claims where payments?commence from 5 April 2010 - $2,660
• For claims received before 5 April 2010 but made after 12 November 1997 - $1,960
• For claims made before 12 November 1997 - $1,550

Case Study

To gain insights into the impact of modernisation on the 2023/24 premium, let us examine the significant rate increases witnessed in the 2021/22 period within the industry. By comprehending the methodology employed in calculating the 2021/22 premium, we can gain a better understanding of what can be expected for the 2023/24 policy period.

Understanding how premium calculations are performed is crucial. Premiums for registered employers in certain insurance systems are calculated using a formula that considers factors such as annual remuneration paid to workers and claims related to injuries within the previous three years. This calculation allows employers to influence their premiums through proactive return-to-work initiatives and positive claims cost performance.

Let’s examine an industry rate within the WorkCover framework that experienced a significant increase during the 2021/22 period. Specifically, we’ll focus on WIC – 20900 Other Non-Metallic Mineral Product Manufacturing. In the previous year, the premium rate for this industry was 5.1850%, but it rose to 11.537% in 2021/22. This substantial increase had a noteworthy impact on the employers’ performance. To address this effect and offer a discounted premium, WorkSafe had to implement a cap on the premium for the 2021/22 period.

Let’s consider the following details for our case study

2021/22 Case Study

The 30% capping requirement serves to safeguard employers against sudden premium increases resulting from claims costs or fluctuating premium rates. It ensures that a single claim cost does not disproportionately affect an employer’s premium. Even if the claim cost itself is insignificant and would not significantly impact the premium calculation, the industry rate’s substantial increase necessitates the implementation of the capping requirement.

It is important to note that claims incurred in 2018, 2019, and 2020 will have an impact on the calculation of the premium for the period of 2021/22. This consideration underscores the relevance of analysing the specific case study, which is conducted based on the provided details for an employer.

• 2021/22?Total claim costs:?$5,208.00
• 2021/22?Employer Performance Rating:?0.628766
• 2021/22 employer performance:?37.12% better than the average performance rating
• 2021/22 Industry rate: 11.537%
• 2020/21 Total claim costs: $Nil
• 2020/21 Employer Performance Rating:?0.829733
• 2020/21 Industry rate:?5.1850%
• 2020/21?employer performance:?17.02% better than the average performance rating

2020/21 Employer Premium Rate Calculation

In 2020/21, the employer’s premium rate was 4.3022%, which was lower than the industry rate of 5.1850%. The employer performance rating was 0.829733, indicating a positive performance compared to the average. The employer’s performance exceeded the industry average performance rating by 17.02%. Consequently, due to this positive performance, the employer received a reduction in the premium rate, and no capping was necessary as no claim cost was recorded.

2021/22 Employer Premium Rate Capped at 30%

in 2021/22 see an increase in the premium rate of 122.51%. Based on the employer’s 2021/22 performance, the employer’s uncapped premium rate was calculated rate 7.8828%.

The 30% cap was necessary due to the employer’s performance uncapped rate of 7.8828%, which exceeded the employer performance rate of 4.3022% in the 2020/21 period. As a result, the employer potential rate was capped at 5.5929% due to a claim with a cost of $5,208.00 with an increase in industry rate of 11.537%. If an employer has zero claim cost, the capping rule would not have applied and would have to pay the uncapped rate of 7.8828%.

2022/23 Case Study

Consider the details below for the same employer.

• 2022/23?Total claim costs:?$306,195
• 2022/23?Employer Performance Rating:?0.812833
• 2022/23 employer performance:?18.71%?better than the average performance rating
• 2022/23 Industry rate:?15.2980%
• 2021/22 Employer Performance Rating:?0.628766
• 2021/22 Industry rate:?11.537%

Based on the employer’s 2022/23 performance, the 2022/23 premium rate requires capping at a rate of 30%.

In the period from 2021/22 to 2022/23, there was a significant increase of 32.60% in the premium rate. The premium rate for employers, which was not subject to a cap, reached 12.4347%, representing a 30% increase compared to the capped employer premium rate of 5.5929% during the same period.

Due to changes in claim costs and premium methodology, the employer premium rate for the year 2022/23 was capped at 7.2708%. This decision was made because the premium rate for the previous year, 2021/22, was capped at a significantly lower rate of 5.5929%. The uncapped premium rate, based on the Employer Performance Rating (EPR), stands at 12.4347%, which is 30% higher than the 2021/22 employer premium rate. However, to maintain consistency and account for the lower previous rate, the premium for 2022/23 needs to be capped.

2023/24 Case Study

The policy period for 2023/24 requires a cap of 75%. However, it’s important to note that any claims accepted between 1 January 2023 and 31 December 2023, will not be included in this policy period. Instead, these claims will be considered in the subsequent policy period, 2024/25. To assess whether the capping will apply in the 2023/24 policy period, let’s examine the policy details for the same employer.

2023/24 Premium Simulation

Based on the above information, using the premium calculation formula we can find out the 2023/24 premium rate.

• Industry rate:?18.000%
• Remuneration used for calculation:?$3,797,400
• Premium used for calculation:?$466,837.16

The 2023-24 employer premium rate is simulated to be 12.2936% which is lower than the industry rate of 18.000%. This suggests that the premium rate would be capped at 75% or that this employer continues to perform better than the industry in the previous few years, especially in 2021-22 the 2021-22 Employer Performance Rating was 0.628766. Based on the 12.2936% calculated rate, the expected 2023-24 Employer Performance Rating would be 0.682978.

Using the capping rule formula, the employer premium rate would be capped at 12.7239%.

There is a premium rate difference of 0.4303% between the two simulations. The difference could be due to the sizing value increasing from 600,000 to 1,700,000. However, the capping formula indicated that the 2023-24 premium rate would more likely not be capped as this employer is expecting to perform 31.70% better than the industry.

Let's assume that the policy period for 2023/24 corresponds to the data from 2021/22, and we have a 75% capping with total claim costs of $5,208.00.

Let's analyse the situation regarding a small claim cost of $5,208.00 and determine if it would result in capping for the 2023/24 period.

To clarify the timeline, the data for 2020/21 is now considered for 2022/23, and the employer's premium rate was 4.3022%.

For the subsequent period, 2021/22 now corresponds to 2023/24, and there is an increase in the premium rate of 122.51%. Consequently, the employer's uncapped premium rate for 2023/24 is calculated to be 7.8828%.

However, instead of applying the previous 30% cap, a new rule is now in place, capping the rate at 75%. This 75% capping rule is applied because the employer's performance uncapped rate of 7.8828% exceeds the employer's performance rate of 4.3022% from the previous year, resulting in an 83.227% increase in premium.

As a result of the 75% capping, the employer's potential rate is capped at 7.52885%. This cap is determined based on a claim with a cost of $5,208.00 and an industry rate increase of 11.537%.

In summary, the 75% capping rule is now applied, capping the employer's potential rate at 7.52885% for the 2023/24 period. This takes into account both the claim cost and the increase in the industry rate.

Conclusion

The occurrence of a premium rate cap during the 2021/2022 period, resulting from rising premium rates, has set a precedent for the upcoming 2023/2024 policy period. This precedent indicates that even employers with low claim costs but facing significant industry rate increases can expect their premiums to be subject to capping.

To adapt to the evolving nature of insurance pricing, it is crucial for employers to assess their claim costs and stay informed about industry developments when considering insurance coverage. By evaluating their claim costs and staying aware of changes in industry rates, employers can better anticipate and manage potential premium rate caps in the upcoming policy period of 2023/2024.

Employers who have low claim costs can benefit from the 30% cap, as they can anticipate lower premiums for the 2023-2024 period compared to potential premium rates. However, the new 75% cap rule means that most employers with claims costs must now exceed the threshold to be eligible for capping. Regardless of the claim costs, if they are higher than the 75% premium increase from the previous year, the premium will be capped.

Author: Yon Ta, updated 21 June 2023.

Disclaimer:

The information presented in this post, article or book is intended solely for informational and educational purposes and should not be considered legal advice. It does not express specific opinions on individual cases. Before taking any action based on the information provided, it is strongly advised to seek additional professional advice. This information should only be used to gain a better understanding of how Workers’ Compensation insurance functions and is purely illustrative. My WorkCover Solutions Pty Ltd disclaims any liability for any losses or damage resulting from the use of or reliance upon the information provided. The information in this article is believed to be accurate as of its publication date. However, please note that changes in applicable laws may affect its accuracy. This article provides general information and does not take into account any specific person’s circumstances. It may contain information about Workers’ Compensation insurance regulations in your State or Territory. To ensure compliance with legal obligations, it is recommended to refer to the current legislation in force in the State or Territory where your business operates. Up-to-date legislation can be found on the respective WorkCover Authority websites for each state or by contacting myWorkCover for updated information.

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