Statistical Case Estimation (SCE): A Comprehensive Guide to WorkSafe Victoria SCE Model & Premiums
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WorkSafe Victoria uses the Statistical Case Estimation (SCE) method to estimate future workers' compensation claims costs. Our research has compiled a guide to help employers understand SCE modelling, even though specific details about WorkSafe Victoria's method are limited.
Employers in Victoria should prioritise understanding 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. It also discusses SCE's fairness, transparency, challenges, limitations, and future directions in workers' compensation management in Victoria. Employers must recognise SCE's value in estimating and managing claims costs, planning, budgeting for potential expenses, and ensuring compliance with Workers' Compensation arrangements.
WorkSafe has recently announced some changes for the 2023/24 financial year to modernise the WorkCover Scheme, aiming to ensure its financial sustainability and meet the requirements of modern workplaces. However, there is limited information available regarding the specific details of these changes and how they might impact the Statistical Case Estimation (SCE) method.
While the search results provided do not directly address the impact of the announced changes on SCE, it is possible that the modernisation efforts could introduce updates or refinements to the estimation process. Unfortunately, without further information or specific documentation from WorkSafe or other authoritative sources, it is challenging to provide a comprehensive understanding of how these changes might affect the SCE.
To stay informed about the potential implications of the announced changes to the SCE method, it is recommended to monitor official communications with WorkSafe or reach out to the organisation directly for more detailed information. They would be best positioned to provide insights into the specific adjustments made to the WorkCover Scheme and any subsequent impact on the estimation of workers' compensation claim costs.
Each state and territory in Australia have its own workers' compensation system, and the methods for estimating future claim costs may vary. Typically, workers' compensation authorities use statistical models and historical claims data to estimate future claim costs. These models consider factors such as the nature of the injury, industry type, occupation, age of the worker, and historical claims trends.
The estimation process involves analysing past claims data to identify patterns and trends that can help predict future claim costs. By examining the characteristics of the claims and the workers involved, authorities can make informed projections about the potential costs associated with different types of injuries and occupations. Additionally, other factors such as changes in legislation, economic conditions, and industry-specific risks may also be considered when estimating future claim costs.
It's important to note that the specific methodologies and practices for estimating claim costs may differ among states and territories. To obtain more detailed and up-to-date information on how each jurisdiction estimates future claim costs, it is recommended to consult the respective workers' compensation authorities or insurers in those regions. They will be able to provide accurate information on the estimation methods employed in their specific jurisdiction.
Table of Contents:
1?????Introduction: A Data-Driven Tool for WorkSafe Victoria
1.1.? Purpose of the Guide
1.2.? Understanding Workers' Compensation Legislation
1.3.? Background of WorkSafe Victoria
1.4. Overview of Workers' Compensation in Victoria
1.5. Why was the SCE Model Built?
2?????Statistical Case Estimation: Concepts and Methodology
2.1. Data Collection and Analysis
2.2. Model Development and Validation
2.3. Model Updating and Maintenance
2.4. What is Statistical Case Estimation?
2.5. Understanding Statistical Case Estimation (SCE)
2.6. Factors Affecting Statistical Case Estimation (SCE)
2.7. The Significance of Statistical Case Estimation (SCE) and Its Application by WorkSafe
2.8. Calculating the Statistical Case Estimate (SCE) ?
2.9. Managing the SCE: Strategies and Approaches
3???? Application of SCE in Claims Management
3.1. Understanding "Minor" & "Standardbil" Claims & Their Impact on Premiums
3.2. The Impact of Excess Buyout on Premium Costs
3.3. Provisional Payments for a Mental Injury
3.4. Prioritising Claims
3.5. Allocating Resources
3.6. Identifying High-Cost Claims
3.7. Monitoring Performance and Outcomes
4??? Impact of SCE on Premium Calculation
4.1. ?Employers Premium in Victoria
4.2. ?Premium Calculation Process - Industry Rates (IR) and Employers Performance Rating (EPR)
4.3. ?Factors Affecting Premium Rates
4.4. ?Understanding Workers' Compensation Claims
4.5. ?Claims Experience Factor and SCE
4.6. ?Understanding What Drives Your Premium
4.7. ?The Impact of Claims on Your WorkCover Premiums
4.8. ?Impact of Industry Claims on WorkCover Premiums
4.9. ?Your WorkCover Claims Statement
4.10. Capping Factor: How it affects your premium
5?????Fairness and Transparency of the SCE System
5.1. Ensuring Consistency and Accuracy
5.2. Reducing Subjectivity and Bias
5.3. Promoting Financial Sustainability
5.4. Encouraging a Culture of Safety
5.5. Seeking a Review of Statistical Case Estimation (SCE) under the Workplace Injury Rehabilitation and Compensation Act 2013
6?????Challenges and Limitations of SCE
6.1. Data Quality and Availability
6.2. Model Assumptions and Uncertainty
6.3. External Factors and Changing Conditions
6.4. Balancing Complexity and Usability
7?????Future Directions and Innovations in SCE
7.1. Advances in Data Collection and Analysis
7.2. Machine Learning and Artificial Intelligence
7.3. Integration with Other Risk Management Tools
7.4. Enhancing Stakeholder Engagement and Communication
8?????Conclusion
8.1. Summary of Key Findings
8.2. Implications for Policy and Practice
8.3. Final Thoughts
Introduction: Statistical Case Estimation (SCE): A Data-Driven Tool for WorkSafe Victoria
Discover the powerful tool revolutionising workers' compensation claims management - Statistical Case Estimation (SCE). This cutting-edge method utilised by WorkSafe Victoria unlocks the secrets hidden within historical data to forecast the future costs of claims. By analysing factors such as occupation, age, injury type, medical expenses, and claim duration, SCE provides a comprehensive and data-driven approach to estimating claim costs. Find out how SCE transforms the way claims are managed, ensuring fair compensation for injured workers while maintaining affordable premiums for employers. Embark on a journey into the world of SCE and witness its remarkable impact on the efficiency and sustainability of the workers' compensation system.
1.1. Purpose of the Guide
Employers in Victoria should prioritise their understanding of WorkSafe Victoria's Statistical Case Estimation (SCE) method. SCE is a crucial tool for estimating and managing claims costs, assessing safety interventions, and complying with Workers' Compensation arrangements. It goes beyond the simple addition of dollar figures to actual claim costs for determining rates and premiums. By utilising SCE, employers can effectively plan and budget for potential expenses associated with workers' compensation claims. Additionally, SCE helps employers assess the effectiveness of safety interventions and make evidence-based adjustments to reduce work-related injuries and illnesses. It is important for employers to comprehend the value of SCE in estimating and managing claims costs, as well as in planning, budgeting, and ensuring compliance with Workers' Compensation arrangements. Staying informed about developments and innovations in workers' compensation management, including SCE, allows employers to adapt their strategies and meet evolving regulations and standards.
This guide provides a comprehensive overview of WorkSafe Victoria's Statistical Case Estimation (SCE) method, which estimates the future costs of workers' compensation claims. It covers SCE's concepts, methodology, application in claims management and impact on the premium calculation. The guide also examines SCE's fairness and transparency, challenges, limitations, and future directions, and innovations in workers' compensation management in Victoria. Employers in Victoria must understand SCE's value in estimating and managing claims costs, planning and budgeting for potential expenses, and assessing safety interventions and compliance with Workers' Compensation arrangements.
1.2. Background of WorkSafe Victoria
WorkSafe Victoria is the government agency responsible for managing the workers' compensation scheme in Victoria, Australia. The agency was established in 1985 and is responsible for regulating workplace safety, providing insurance coverage for workplace injuries, and supporting injured workers in their recovery and return to work. WorkSafe Victoria is funded by premiums paid by employers, which are calculated based on the estimated cost of workers' compensation claims.
1.3. Understanding Workers’ Compensation Legislation
Workers' Compensation insurance provides financial protection against various costs associated with workplace injuries, such as claim costs, litigation costs, medical expenses, and Common Law compensation. It operates under a "no-fault" system, meaning that injured employees are entitled to medical and compensation benefits regardless of who caused the accident at the workplace. In most cases, employees are eligible for benefits even if they were partially or entirely responsible for their injuries, with the exception being intentionally self-inflicted injuries.
To qualify for workers' compensation benefits under the no-fault principle, workers covered by the legislation only need to demonstrate that their injuries are work-related. There is no longer a requirement to prove employer negligence. Workers' Compensation insurance, also referred to as WorkCover insurance, is compulsory for employers who hire full-time or part-time, casual workers, apprentices, trainees, contractors, or subcontractors under oral or written contracts of service.
The benefits provided by workers' compensation coverage include incapacity payments to compensate for lost earnings, coverage for medical expenses and related costs, lump sum payments for permanent impairment or death, and rehabilitation services, as well as addressing mental health issues or illnesses resulting from workplace injuries. The workers' compensation scheme operates within a broader framework that encompasses work health and safety, industrial relations, social security entitlements, superannuation policies, and access to benefits.
In Victoria and other states, most businesses are required to have WorkCover insurance.
If you:
Exemptions from WorkCover Insurance
You are exempt if you are:
NT, WA: Only if Directors Coverage is requested. WA: Only include the wages component.
Alternative Insurance
Sole traders/sole proprietors, Partners in a partnership or Trustees of a trust is individual or partners in a partnership who are not covered under any Workers’ Compensation scheme in Australia and will need to consider alternatives such as Income Protection or Personal Accident insurance, Life insurance or Other Health insurance.
What happens if you don’t have Workers’ Compensation insurance & what are the consequences of being uninsured?
Employers are legally required to have workers' compensation insurance if they have employees. Failure to have it can lead to severe consequences, including fines, imprisonment, and the loss of business. The penalties for not having insurance vary by state and can include criminal charges, fines, and litigation. Injured workers can seek compensation from the WorkCover Authority, but employers without insurance may be liable for the costs and penalties of the claim. WorkCover Authority is the only entity that can pay compensation and damages to a worker and may recover the costs from the employer.
If I do not have the required Workers’ Compensation insurance, could my business be shut down?
If an employer fails to obtain the required workers' compensation insurance, WorkCover may file a lawsuit for an injunction (High Court Order) to stop the employer from operating their business until they comply with the law. Penalties apply for businesses that operate without a current Workers' Compensation policy, including legal costs and unpaid premiums. If an uninsured claim is lodged during this period, the consequences could be severe.
Recommend reading: What is Workers' Compensation insurance?
1.4. Overview of Workers' Compensation in Victoria
Workers' compensation in Victoria is governed by the Workplace Injury Rehabilitation and Compensation Act 2013 (WIRC Act) and administered by WorkSafe Victoria. It covers all types of workers, providing financial support and medical treatment for work-related injuries or illnesses.
In Victoria's workers' compensation scheme, injured workers receive medical treatment, rehabilitation, and wage reimbursement payments. Employers ensure a safe working environment and pay premiums to fund the system. The insurance covers occupational illnesses and injuries, including medical expenses, lost wages, rehabilitation, job training, and temporary disability.
Premiums are based on factors like industry, payroll, claims history, and more. WorkSafe Victoria oversees the administration of the scheme. Employers often face unexpected premium claim costs, with Statistical Case Estimation (SCE) playing a significant role. WorkSafe provides a renewal Claims Statement each year by mid-May. This guide explores the SCE method in-depth, covering its concepts, methodology, application in claims management, and impact on premium calculation. It also examines the fairness, transparency, challenges, limitations, and future developments of SCE and their implications for workers' compensation management in Victoria.
1.5. Why was the SCE Model Built?
The SCE serves as a tool for calculating outstanding liabilities for individual claims and has various important purposes and applications. Its primary role is to evaluate the relative significance of small and larger claim groups, regardless of how these groups are defined. It is important to note that SCEs can exhibit volatile reactions to changes in experiences, making it challenging to analyse and project underlying trends. SCE may not accurately reflect total liabilities since it does not respond to overall payment trends in the same way, which is the SCE might not reflect the true extent of liabilities due to its inability to account for fluctuations in payment trends.
Claim estimates in the Victorian scheme are derived from a statistical model that considers 38 years of claim information. Initially, the estimate is based on the experience of claims with similar characteristics, such as injury type, location, age, gender, and occupation of the injured worker. Over time, the estimate incorporates the individual claim's experience and expected treatment and rehabilitation process.
Employers may perceive the estimates provided by the statistical model as higher than their own anticipated future claim costs. However, it's important to understand that the estimating model considers future costs and factors in the probability of different payment types for the claim. This applies to all claims and is used to compare employer performance relative to their industry.
By relying on a comprehensive statistical model, the estimating process provides a fair and objective assessment of claim costs, considering various factors that influence the overall performance of employers in comparison to their industry peers.
The SCE Model has various potential applications, including:
When evaluating a good SCE model, it is essential to consider several fundamental requirements. These requirements encompass the differentiation between high-cost claims and lower-cost claims. A reliable SCE model should effectively distinguish between claims with varying costs, allowing for an accurate assessment of the financial impact associated with different types of claims. Another crucial aspect is the ranking of claims from high cost to low cost. A proficient SCE model should have the ability to prioritise claims based on their costs, providing valuable insights into potential financial liabilities. Additionally, it is important to strive for a close alignment between the average SCE of any subgroup of claims and the actual mean cost of those claims.?
Statistical Case Estimation: Concepts and Methodology
2.1. Data Collection and Analysis
The first step in SCE is to collect and analyse data on workers' compensation claims. This data includes information on the worker, the injury, the medical treatment received, and the cost of the claim. The data is typically collected by WorkSafe Victoria and its agents, such as insurance companies and claims management firms.
Once the data is collected, it is analysed using statistical methods to identify patterns and trends. This analysis helps in identifying the factors that contribute to the cost of a claim, such as the worker's age, occupation, industry, and the nature and severity of the injury. The data is also used to develop and validate statistical models for estimating the cost of future claims.
2.2. Model Development and Validation
The next step in SCE is to develop and validate statistical models for estimating the cost of future claims. This involves selecting the appropriate variables to include in the model, specifying the model structure, and estimating the model parameters.
The variables used in the model are typically selected based on their relevance to the cost of a claim. For example, variables such as the worker's age, occupation, and industry may be included in the model, as these factors can influence the cost of a claim. The model structure is then specified, which involves determining the functional form of the model and the relationships between the variables.
Once the model structure is specified, the model parameters are estimated using statistical methods. This involves fitting the model to the historical claims data and estimating the values of the model parameters. The model is then validated using a separate set of data to ensure that it can accurately predict the cost of future claims.
The SCE model employed by WorkSafe utilises claims data to determine a Statistical Case Estimate (SCE) for a more objective and consistent estimation process. These estimates serve as a measure of injury severity, considering the total cost of a claim. By using estimates, claims from different years are given equal weight, preventing older claims with more payments from disproportionately impacting premiums.
The SCE model is a type of predictive claims model that provides individual estimates of future claim costs based on existing claims. It utilises a statistical model that considers the specific characteristics of each claim. Predictive claims models are valuable as they implicitly connect underlying factors to outcomes at the individual claim level.
These models serve three main purposes:
Past payment levels are reliable predictors of future payments and are key factors in the model. They determine whether a claim is currently receiving weekly benefits ("on" benefits) or not ("off" benefits). The probability of benefit continuation increases with each additional month of receiving "on" benefits.
2.3. Model Updating and Maintenance
The final step in SCE is to update and maintain the statistical models over time. This is necessary to ensure that the models remain accurate and relevant as new data becomes available and as conditions change.
Model updating involves incorporating new data into the models and re-estimating the model parameters. This helps to ensure that the models remain up-to-date and can accurately predict the cost of future claims. Model maintenance involves monitoring the performance of the models over time and adjusting as necessary to improve their accuracy and relevance.
Overall, the SCE method is a data-driven approach to estimating the cost of workers' compensation claims. By using statistical models to predict the cost of future claims, SCE helps in setting appropriate premium rates for employers and managing the workers' compensation scheme effectively. The method involves collecting and analysing data, developing, and validating statistical models, and updating and maintaining the models over time.
2.4. What is Statistical Case Estimation (SCE)?
Statistical Case Estimation (SCE) is a method employed by WorkSafe Victoria to anticipate future costs of workers' compensation claims. Utilising statistical models, SCE predicts the overall expenses of a claim, encompassing medical treatments, rehabilitation, and wage reimbursement. Historical claims data and relevant factors like age, occupation, industry, and injury severity inform the development of these models.
SCE's foundation lies in the principle that claims characteristics and worker attributes enable cost prediction. By analysing historical data, SCE models identify patterns and trends, facilitating the estimation of future expenses. This data-driven approach aids in setting appropriate premium rates and managing the workers' compensation system effectively.
As a valuable tool for WorkSafe Victoria, SCE accurately estimates future financial obligations tied to workers' compensation claims. It assesses compensation levels, enhances claims management, and determines insurance premiums. By predicting total costs, including medical expenses and wage reimbursements, SCE facilitates effective planning and decision-making processes.
Employers in Australia recognise the significance of workers' compensation insurance for safeguarding their employees against work-related injuries. WorkSafe Victoria assumes a critical role in managing and evaluating compensation claims, including premium calculations. Utilising Statistical Case Estimation (SCE), a statistical modelling technique that accurately forecasts future claim costs (so to speak).
Within the workers' compensation system, Statistical Case Estimation plays a vital role, aiding WorkSafe Victoria in the precise prediction of claim costs. By considering various claim characteristics and employing a data-driven approach, SCE provides valuable insights for claims management and ensures the financial stability of the compensation scheme. However, it's important to acknowledge the limitations of SCE. Unforeseen complications, unexpected medical developments, or unique circumstances may lead to deviations between estimated and actual claim expenses. SCE serves as an estimate, and final claim costs can vary due to these unpredictable factors such as the Covid pandemic.
2.5.?Understanding Statistical Case Estimation (SCE)
The SCE, based on WorkSafe's extensive claims experience of over 38 years, is a statistical model that utilises collected claim data and compares it to similar cases to estimate the projected future costs.
SCEs, or Statistical Case Estimates, are individual estimates of the future claim-related costs that arise from existing, open claims. These estimates are specific to each individual claim and are determined based on the claim's risk characteristics. The risk characteristics taken into consideration when predicting SCEs include various factors, such as claimant characteristics and employer characteristics.
SCEs serve as estimates of the future costs associated with each claim and are valuable for managing and accessing claims, as well as for calculating insurance premiums for employers. By analysing the risk characteristics of individual claims, WorkSafe Victoria can estimate the expected costs and outcomes for each claim, allowing for better planning and decision-making. This estimation process helps WorkSafe Victoria allocate appropriate resources and provide accurate compensation to injured workers while ensuring that employers are charged fair and accurate insurance premiums.
It's important to note that SCEs are based on available data and statistical models, and they represent estimates rather than definitive values. The predictive ability of SCEs can vary, and certain weaknesses may exist in estimating claim-related costs for specific groups of claims. For example, recently reported cases may have less information available, making it challenging to inform the estimate accurately. Additionally, not all relevant data may be currently accessible for modelling purposes, indicating room for improvement in data collection practices.
The SCE considers the following categories of characteristics:
The SCE (Statistical Case Estimate) provides a reliable estimation of WorkSafe's anticipated claims liability, as assessed by external actuaries. However, it's important to note that the SCE may not accurately predict the future costs of an individual claim, leading to uncertainties and questions regarding specific cases.
Data is gathered and undergoes statistical analysis to detect patterns and trends. This analysis helps identify factors that influence claim costs, including the worker's age, occupation, industry, and the nature and severity of the injury. Statistical models are then constructed and validated using this data to estimate future claim expenses.
Confidential SCE data is crucial for claims management, evaluation, and insurance premium determination by WorkSafe Victoria. The SCE model takes into account factors such as injury severity, associated medical expenses, and the potential impact on the worker's future earnings. By leveraging its extensive historical claims database, WorkSafe Victoria's model identifies relevant patterns and trends to predict outcomes.
This predictive approach allows WorkSafe to anticipate forthcoming claim costs and establish appropriate insurance premiums for employers. The SCE model is regularly updated to maintain relevance and accuracy. WorkSafe also reviews the model and its underlying assumptions to align with workforce changes, medical advancements, and legislative requirements.
2.6.?Factors Affecting Statistical Case Estimation (SCE)
Many factors can affect the duration and cost of a workers' compensation claim, including:
2.7. The Significance of Statistical Case Estimation (SCE) and Its Application by WorkSafe
The significance of Statistical Case Estimation (SCE) and its operational mechanism within WorkSafe Victoria hold profound implications for both workers and employers. Accurate estimation of cases emerges as a crucial aspect benefiting workers by providing them with a comprehensive understanding of the recovery and return-to-work process. Concurrently, employers gain the ability to strategise effectively for the expenses associated with workers' compensation insurance, as well as identify opportunities to prevent injuries.
WorkSafe Victoria relies on SCE as a fundamental instrument to manage workers' compensation claims while ensuring the sustainability and affordability of the system. Its primary objective revolves around precisely estimating claim costs and granting equitable compensation to injured workers, all while keeping premiums reasonably priced for employers. The implementation of SCE yields a multitude of advantages, including early identification of high-risk claims, efficient management of medical care and rehabilitation services, decreased claim duration and costs, and an enhanced likelihood of workers returning to their duties.
Moreover, SCE plays a pivotal role in discerning patterns and trends within workers' compensation claims, thereby informing policy and regulatory decisions. This valuable insight contributes to the implementation of new safety regulations and the provision of supplementary training in high-risk industries. By harnessing the power of data-driven models, SCE promotes transparency and impartiality throughout the workers' compensation system. Consequently, injured workers receive objective and consistent compensation, fostering trust and confidence in the system and leading to favourable outcomes for all stakeholders involved.
The process of SCE involves intricate statistical procedures that diligently consider factors such as the worker's occupation, age, injury type, medical costs, and claim duration. WorkSafe Victoria leverages historical claim data to develop statistical models capable of estimating future claim costs. These models undergo rigorous validation employing diverse statistical techniques, ensuring their accuracy and reliability. Overall, SCE serves as an indispensable tool for WorkSafe Victoria, facilitating the management of workers' compensation claims, reinforcing workplace safety measures, reducing costs for employers, and fostering the sustainability and efficacy of the entire system.
The primary goals of implementing the SCE system in managing workers' compensation claims are as follows:
It is important to clarify that the SCE method does not determine the actual compensation paid to an injured worker. Rather, it serves as a tool for managing claims and ensuring the sustainability of the workers' compensation scheme in Victoria.
The fairness of the SCE system is a subject of debate influenced by personal perspectives and experiences. The SCE system was developed to assist WorkSafe Victoria in managing and accessing workers' compensation claims, as well as determining insurance premiums for employers. Supporters argue that the system ensures fair compensation for injured workers while accurately calculating insurance premiums for employers. They maintain that the system is grounded in objective data and statistical models, minimising bias, and subjectivity in the claims assessment process.
Opponents of the SCE system argue that it can lead to unjust outcomes, particularly for workers with prolonged or complex injuries. They contend that the system may overlook relevant factors for specific claims, and the statistical models used to determine the SCE amount may not accurately reflect the actual costs of a claim.
Ultimately, the fairness of the SCE system is subjective, and individual circumstances and perspectives play a role in shaping opinions. WorkSafe Victoria is committed to ensuring an equitable and transparent system, regularly reviewing, and improving it to be responsive to the needs of both injured workers and employers.
2.8.?Calculating the Statistical Case Estimate (SCE) ?
The calculation of the Statistical Case Estimate (SCE) in WorkSafe Victoria involves a comprehensive process that relies on statistical models and risk characteristics of individual claims. An SCE represents an estimate of future claim-related costs for existing open claims. The estimation is performed on each claim based on factors related to its risk profile, such as claimant characteristics and other pertinent information.
The statistical models used in the SCE calculation leverage historical data and past claims experience to generate estimates. These models consider various risk factors, including the size distribution of claims and other relevant claim characteristics. By analysing the data and applying statistical techniques, the SCE aims to provide accurate projections of future costs associated with each claim.
It is important to note that the SCE is a dynamic measure that can fluctuate over time. As the claim progresses and new information becomes available, the SCE may be adjusted accordingly. While the SCE estimation will never be reduced to zero, it remains subject to changes based on the evolving circumstances of the claim.
The SCE generally decreases over time as a claim progresses. Payments made on the claim reduce the future estimate. The duration for the SCE reduction varies depending on the claim, ranging from months to years. It's important to note that the SCE typically doesn't reach zero, especially when it is still considered for premium calculations.
Example of SCE Calculation over the Period of a Single Claim
Let's consider a specific claim and track the calculation of the SCE amount over time. Assume the initial SCE estimate for the claim is $10,000.
In this example, the claim progresses over five periods. As payments are made, they are deducted from the future estimate (SCE). The total amount paid increases with each period, while the future estimate decreases, however, the SCE will never reach zero.
The SCE never reaches zero because it serves as an estimate for the expected future costs of a claim. Even as payments are made towards a claim, there may still be ongoing expenses or potential future costs associated with it. Therefore, the SCE continues to reflect the projected expenses, ensuring that the claim is accounted for in premium calculations and allowing for proper assessment and management of the claim.
The SCE amount serves as an estimate for the expected future costs of a claim. WorkSafe Victoria utilises this estimate to effectively manage claims, assess the appropriate compensation level, and calculate insurance premiums for employers. However, it is important to note that the actual cost of a claim may deviate from the SCE amount due to unforeseen circumstances such as unexpected complications or medical developments.
2.9. Managing the SCE: Strategies and Approaches
The SCE relies on verifiable data like payment history, medical certificates, common law lodgement, and successful return-to-work cases. Unrecorded details or individual-specific circumstances are not considered.
When considering the implications for the employer, it is important to note that the higher value of the estimates under the estimation model does not necessarily have a significant impact on the employer's premium. This is because the employer's claims costs are used to assess their relative performance compared to their peers within the industry. The employer's estimates are also compared to those of other employers in the industry, using the same consistent and objective method.
In the claims experience of the industry, it is the ratio of the employer's claims estimates to those of other employers that hold significance. By employing a standardised approach, where all estimates are made using the same method, employers are less likely to be disadvantaged. This approach ensures fairness and reduces the chance of one employer being unfairly impacted by the use of modelled estimates. Ultimately, the use of a consistent and objective estimation model provides a more equitable framework for assessing an employer's claims performance within their industry.
To reduce the SCE (Statistical Case Estimation), employers can implement several strategies:
Implementing these strategies enables employers to effectively manage and reduce the SCE, resulting in more accurate cost estimations and potentially lower insurance premiums. Prioritising workplace safety and effective claims management takes precedence over managing the SCE. By focusing on these primary priorities, the SCE concerns become secondary. Emphasising workplace safety and proper claim management naturally aligns with SCE estimates.
WorkSafe effectively manages the SCE through the implementation of a data-driven approach and the utilisation of statistical models.
SCE relies on a data-driven approach that utilises statistical models to predict the future costs of workers' compensation claims. These models are continuously updated to maintain their accuracy and relevance, utilising historical claim data. The key components and benefits of SCE include data collection and analysis, model development, model validation, model updating, application in claims management, and various advantages such as improved accuracy and consistency in cost estimation, better resource allocation and decision-making, early intervention and proactive claims management, and enhanced efficiency and effectiveness of the workers' compensation system.
Here is an overview of the typical management process for SCE:
WorkSafe aims to provide accurate estimations of future claim costs by effectively managing data, employing statistical techniques, validating models, implementing algorithms, and continuously improving the SCE process. This ensures the evaluation of claims, the setting of insurance premiums, and the sustainability of the workers' compensation system.
Application of SCE in Claims Management
3.1.?Understanding "Minor" and "Standard" Claims and Their Impact on Premiums
In WorkSafe Victoria, a “minor” claim refers to a workers' compensation claim that falls below the designated thresholds for the excess period and specified medical expenses. These claims are considered to have minimal impact and are not factored into the calculation of the current WorkCover premium. However, if the accumulated costs of these minor claims exceed the excess thresholds, they may be reclassified as standard claims and considered when determining future premium rates.
A “standard” claim refers to a workers' compensation claim that has exceeded the designated excess thresholds, both in terms of the specified period and the medical expense limit. These claims are considered significant and are considered when calculating WorkCover premiums.
Under the workers' compensation legislation in Victoria, two employer liabilities need to be fulfilled before WorkSafe assumes responsibility for the payments. These are referred to as excesses, and it is the employer's responsibility to pay them.
In summary, minor claims that do not exceed the excess period and medical expense threshold do not impact the current WorkCover premium but may influence future premium rates if they surpass these thresholds.
3.2 The Impact of Excess Buyout on Premium Costs
The Authority's obligation to indemnify an employer for their liability to pay compensation and damages is subject to an excess for each claim. Employers can choose the excess buyout option on their WorkCover Insurance premium to eliminate the excess. This option requires an additional 10% of their annual premium. Employers must notify the Authority in writing by August 1st of each year for the change to take effect in the current premium period.
By selecting the excess buyout option, employers can avoid paying the excess when their workers are injured. This option is available to all employers and helps reduce the administrative and financial impact, especially for small businesses, during the initial stages of an accepted claim.
In general, it is advisable to choose the buyout option for your Workcover claims if your annual medical and related expenses exceed the employer excess threshold based on your claim's history. However, if you do not anticipate exceeding the excess threshold, the buyout option may not be a suitable choice. The employer excess threshold is adjusted annually, and for the 2022/23 policy period, the excess is $763.00, an increase from $744.00 in the 2021/22 period.
Note: The employer’s medical excess does not apply to claims where the worker is entitled to provisional payments for a mental injury claim.
3.3. Provisional Payments for a Mental Injury
If a worker qualifies for provisional payments for a mental injury starting from 1 July 2021, the employer is not required to pay a medical excess throughout the claim, even if the mental injury aspect is resolved later. This exemption applies when there is both physical and mental injury involved. It's important to note that the costs of provisional payments for a mental injury will not be considered in the Statistical Case Estimation (SCE). However, if a secondary mental injury occurs after the claim settlement, employers are still responsible for paying the first 10 days' excess of weekly payments for mental injury claims, unless they have opted for the buy-out option.
WorkSafe has recently announced changes to implement the eligibility criteria for mental injury claims for the 2023/24 financial year. It has been stated that workers with stress and burnout claims will no longer be eligible to receive weekly payments from WorkCover. Instead, these workers will have the option to access provisional payments for a period of 13 weeks. These payments will be specifically allocated to cover medical treatment related to their mental injury. Additionally, enhanced psychosocial support will be provided to assist these workers in their return to the workplace or training pathways.
Recommend reading: Workplace Mental Health and ISO 45003 - Will Implementing ISO 45003 Reduced Workers' Compensation Premiums?
3.4. Prioritising Claims
One of the key applications of Statistical Case Estimation (SCE) in claims management is prioritising claims. By estimating the cost of a claim, SCE can help identify high-cost claims that require additional attention and resources. This allows claims managers to prioritise their workload and focus on the most critical claims first.
SCE can also help identify claims that are likely to be complex or require additional support. For example, claims involving serious injuries or long-term disabilities may require more resources and support than other claims. By identifying these claims early, claims managers or case managers can ensure that the necessary resources and support are in place to manage the claim effectively.
Prioritising claims based on their estimated cost can also help ensure that claims are managed efficiently and effectively. By focusing on high-cost claims, claims managers can ensure that resources are allocated where they are needed most and that the most critical claims are managed in a timely and effective manner.
3.5. Allocating Resources
Another application of SCE in claims management is allocating resources. By estimating the cost of a claim, SCE can help identify the resources that are required to manage the claim effectively. This includes resources such as medical treatment, rehabilitation services, and wage replacement payments.
SCE can also help identify the most cost-effective resources for managing a claim. For example, if a particular type of medical treatment is effective in managing a particular type of injury, SCE can help identify cases where this treatment should be used.
Allocating resources based on the estimated cost of a claim can also help ensure that resources are used efficiently and effectively. By focusing resources on the most critical claims, claims managers can ensure that resources are used where they are needed most, and that the most critical claims are managed in a timely and effective manner.
3.6. Identifying High-Cost Claims
SCE can also be used to identify high-cost claims that require additional attention and resources. By estimating the cost of a claim, SCE can help identify claims that are likely to be complex or require additional support. Identifying high-cost claims early can help ensure that the necessary resources and support are in place to manage the claim effectively. This can include resources such as medical treatment, rehabilitation services, and wage replacement payments. By identifying high-cost claims early, claims managers can also ensure that the most critical claims are managed in a timely and effective manner.
SCE can also help identify the factors that contribute to high-cost claims. For example, SCE may identify that claims involving certain types of injuries or occupations are more likely to be high cost. This information can be used to develop strategies for preventing these types of injuries or improving workplace safety.
The Statistical Case Estimate (SCE) is a useful tool for providing an objective estimate of future payments for individual claims. However, it is important to note that there is a larger margin of error at the end of the distribution when using SCE. It means that for very high-cost claims, the estimate may be less accurate. In the context of employer premiums, the calculation used for experience rating caps the cost of large claims, which helps limit the impact of these high-cost claims on the premium calculation process.
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The estimates for very high-cost claims still retain a significant portion of the cost incurred, even for the oldest report years available. Among a small number of injured workers, the liability is primarily driven by expenses related to attendant care, medical costs, and similar factors. On the other hand, for individuals not falling into this category, the ongoing liability tends to be primarily influenced by future weekly benefits.
3.7. Monitoring Performance and Outcomes
Strategic Claims Estimation (SCE) can play a vital role in monitoring the performance and outcomes of claims management processes. It assists in assessing the estimated cost of a claim, enabling the identification of cases where the cost of managing a claim exceeds expectations. This serves as an indicator of potential issues within the claims management process or the need for additional resources.
For instance, SCE can help highlight cases where injured workers are experiencing delays in returning to work, indicating the necessity for additional support or resources to facilitate their return. By monitoring performance and outcomes, SCE enables the identification of areas for improvement within the claims management process. This could involve enhancing the efficiency of claims management procedures, providing additional assistance to injured workers, or implementing strategies to prevent workplace injuries.
Impact of SCE on Premium Calculation
4.1 Employers Premium in Victoria
The industry, remuneration, and claims performance are the three key drivers of a WorkCover premium. WorkSafe determines the industry rate by analysing the previous five years' data on the industry's remuneration, claims, and costs. WorkSafe assigns each business to an industry and sets a scheme rate based on the predicted claims for the next year.
It's crucial to ensure that your business is assigned to the correct industry, as it affects your premium. If you believe your business is assigned to the wrong industry, contact myWorkCover for a free health check on your policy and potential premium changes.
So, what can a business do to safeguard itself? Keep your claims to a minimum and understand your policy’s coverage.
An employer's premium is based on:
4.2. Premium Calculation Process – Industry Rates and Employers Performance Rating (EPR)
The premium calculation process is a key component of the workers' compensation scheme in Victoria. Employers pay premiums to fund the scheme which are calculated based on the estimated cost of workers' compensation claims. The premium calculation process considers a range of factors, including the employer's industry, payroll, claims history, and other relevant factors.
The premium calculation process is designed to ensure that employers pay a fair and appropriate premium based on their level of risk. Employers with a higher risk of workplace injuries are required to pay a higher premium, while employers with a lower risk of workplace injuries pay a lower premium.
How claims are used in the premium calculation
Claims costs are utilised in the premium calculation for employers with rateable remuneration exceeding $200,000. For employers with lower rateable remuneration, their premium is determined based on the industry rate, which reflects the industry's performance. It's important to note that claims costs themselves do not directly impact an employer's premiums. Instead, they are used to calculate the employer's performance rating (EPR), which is then employed in determining the premium rate. The EPR compares an employer's claims costs to those of their industry, considers their size relative to the industry and the total claims costs for the industry. Employers with better-than-average performance will enjoy lower premium rates, while those with below-average performance will face higher premium rates compared to the industry average.
What are Weighted Industry Rates (WIR) & Industry Rates (IR)?
The Premiums Order sets a single premium rate for an employer's current risk workplaces with the same industry classification. However, if the employer has high-risk workplaces in different industries, the weighted industry rate (WIR) is calculated to account for the various industries. The weighted industry rate is based on the industry rate (IR) and remuneration for each current risk workplace. However, if the same industry classification applies to each of the employer’s current risk workplaces, then the weighted industry rate will be equal to the applicable industry rate. If the remuneration is below $200,000, the employer's weighted industry rate is the comparative rate (industry rate).
What is the Employer’s Performance Rating (EPR)?
The employer performance rating is a measurement of the employer’s performance in occupational health and safety based on claims made against the employer. The calculation considers the employer’s claims history relative to its industry (referred to as the performance index) as well as its size (referred to as the size adjustment factor). The performance index compares a given employer’s actual performance (known as the employer’s claims cost rate) to the average performance of the industries in which that employer has been operating during the relevant period (known as the employer’s industry average claims cost rate).
The size adjustment factor regulates the impact of an employee’s performance on its premium so that a larger employer’s claims history (good or bad) has a greater impact on its premium than a smaller employer’s claims history (good or bad). A one-star employer performance rating is considered average. Anything greater than “one” represents below-average performance, while anything less than “one” represents above-average performance.
Certain employers have an EPR rating of 1.
This applies, and the employer performance rating for an employer is 1 if:
If you have had WorkCover insurance claims in the period between 1 July 2019 to 30 June 2022 (2023/24 renewal period), WorkSafe will give you a performance rating. This rating will be displayed on your July premium notice. This rating is an indication of your performance relative to other employers operating within the same industry and is used to re-calculate your premium rate. The larger your rateable remuneration, the greater the weight that is given to your experience.
WorkSafe uses all the above factors and variables in setting the rating, which is then factored into your premium amount, so if you have a good rating (or low claims) your premium will be reduced. If your rating is below 1, then you are doing better than the industry, if your rating is above 1 then you are doing worse than your peers. Therefore, it is important to take proactive steps to reduce injuries through early intervention and effective injury management when incidents occur.
Improving the EPR is essential for enhancing performance and reducing premiums, especially for large employers.
4.3. Factors Affecting Premium Rates
There are a range of factors that can affect premium rates in the workers' compensation scheme. These include the employer's industry, payroll, claims history, and other relevant factors.
Employers in high-risk industries, such as construction or manufacturing, are generally required to pay a higher premium than employers in low-risk industries, such as office-based businesses. The size of the employer's payroll is also a factor, as larger employers generally have a higher risk of workplace injuries.
The employer's claims history is also an important factor in determining premium rates. Employers with a history of high-cost claims are likely to pay a higher premium than employers with a history of low-cost claims. This is because the cost of claims is used to estimate the employer's future claims experience, which is a key factor in determining premium rates.
Three key factors determine your WorkCover premium.
Your Premium = Remuneration x Industry Rate x Employer Performance Rate
Improving your employer's performance rating will result in lower premiums. This involves enhancing your claim performance, reducing costs and fostering a happier and safer workforce.
4.4. Understanding Workers' Compensation Claims
To fully understand the significance of statistical case estimation, it's essential to have a basic understanding of workers' compensation claims. In Australia, if an employee sustains an injury while performing their job, they are entitled to compensation for medical treatment and lost income. This compensation is provided by their employer's workers' compensation insurance, which WorkSafe Victoria oversees. WorkSafe Victoria's workers' compensation system supports injured workers in their recovery and returns to work, and statistical case estimation is an integral part of this system. It involves estimating the duration and cost of a workers' compensation claim based on various factors.
WorkCover insurance provides coverage for expenses related to workplace injuries or illnesses. It includes compensation for lost wages, medical and similar expenses (such as GP, physiotherapy, and psychology), as well as legal and impairment benefits for more serious claims. While these costs are covered by the insurance, they have an impact on your future WorkCover premiums.
Your WorkCover premium is determined by three main factors, one of which is your claims performance. This refers to the amount that has been paid out to your claims. Like other types of insurance, the premium you pay is based on the perceived risk of you making a claim.
Every claim made against a Victorian employer is accompanied by an estimate, which represents the anticipated future costs of the claim based on its likelihood. These estimates are subject to change on a monthly basis, considering any new information or developments related to the claim, such as changes in the worker's condition or their return to work.
Although the estimated future claim cost is calculated every month, only the estimate determined in July is used in the calculation of an employer's performance rate and affects the premium calculation. However, the other monthly estimates still hold value as they provide the employer with the most up-to-date prediction of the claim's future cost and offer an indication of the total cost that will be utilised in the subsequent premium calculation.
By incorporating estimates into the assessment process, employers are provided with timely insights into the projected future cost of claims, allowing them to make informed decisions regarding their insurance coverage and risk management strategies.
4.5. Claims Experience Factor (or EPR) and SCE
The claims experience factor refers to as Employer’s Performance Rating (EPR) is a key component of the premium calculation process in the workers' compensation scheme. The claims experience factor reflects the employer's claims history relative to the industry average. Employers with a claims experience factor greater than 1.0 are required to pay a higher premium than employers with a claims experience factor less than 1.0.
SCE plays a key role in calculating the claims experience factor. By estimating the cost of workers' compensation claims, SCE helps to determine the employer's claims experience and its impact on premium rates. Employers with a history of high-cost claims are likely to have a higher claims experience factor and pay a higher premium than employers with a history of low-cost claims.
Factors Influencing Your Claim Costs
In Victoria, claim costs are based on factors such as injury severity, medical expenses, rehabilitation costs, and additional benefits provided under the workers' compensation system. These costs are assessed during the claim evaluation process. They include medical treatments, consultations, tests, medications, rehabilitation services, and lost wages if applicable.
Claim costs vary depending on the specific case, considering factors like injury severity, treatment duration, and long-term effects on the worker's ability to work. High claim costs can lead to increased premiums for employers, indicating greater risk and potential financial burden on the workers' compensation system.
Preventing workplace injuries, promoting safety, and effectively managing claims can help reduce claim costs and minimise the financial impact. Implementing occupational health and safety practices, providing training and support to workers, and addressing workplace hazards promptly is essential for minimising claim costs and ensuring the well-being of the workforce.
4.6. Understanding What Drives Your Premium
Let's explore different methods for assessing WorkCover safety and performance. Several factors drive the WorkCover premium. These factors include:
These factors, along with other considerations, are considered when calculating your WorkCover premium. Managing claims effectively, implementing occupational health and safety practices, and promoting a safe work environment can help mitigate risks and potentially reduce premiums.
WorkCover Performance
WorkCover performance is evaluated based on two main factors: the presence of claims and their associated costs. If a business has no claims, it is generally considered a sign of good performance. However, claim costs play a significant role in WorkSafe's assessment.
WorkSafe places a strong emphasis on effectively managing claim costs and evaluates agents based on criteria such as the number of injured workers who return to work within six months and the expenditures on medical and allied health services. The goal is to achieve favourable health outcomes at reasonable costs.
When assessing claim costs for a business, the key consideration is how its costs compare to others in the same industry. Higher claim costs lead to higher premiums, while lower costs result in lower premiums. However, successful WorkCover management involves more than just cost control; businesses must also fulfil the legal obligations outlined by WorkSafe.
At an industry level, WorkSafe focuses on both the number of claims received and the costs associated with those claims, with greater importance placed on the cost aspect.
For businesses without any claims, the interpretation of their performance is nuanced. WorkSafe utilises a benchmark known as the "Number of injury claims per million hours worked" to assess the frequency of workplace injuries relative to the amount of work performed. This benchmark provides a standardised measure of safety performance across different industries and work environments.
On average, the data indicates that there are approximately six injury claims for every one million hours worked in the state. This means that, statistically, there are approximately six reported workplace injuries for every 500 full-time workers in a year or roughly one injury for every 83 full-time workers.
Safe Work Australia has released its annual?Comparative Performance Monitoring (CPM) Report?which compares workplace safety among all states and territories, based on claims per 1000 employees and claims per million hours worked. The 24th edition of Comparative Performance Monitoring (CPM) Reports suggested the Australian frequency rate of serious claims has risen from 5.7 to 6.2 claims per million hours worked between 2015-16 and 2019-20, indicating a 9% increase. Preliminary data for 2020-21 suggests that the frequency rate has further increased to 6.5 claims per million hours worked. An increase of 0.3% could be related to the Covid-19 pandemic claims.
The Australian incidence rate for serious claims has risen from 9.5 to 10.1 claims per 1,000 employees between 2015-16 and 2019-20, representing a 7% increase. Preliminary data for 2020-21 suggests that the incidence rate has further increased to 10.5 claims per 1,000 employees.
By comparing the actual number of injury claims in a workplace to this benchmark, WorkSafe can evaluate the safety performance and identify any significant deviations from the average. This benchmark helps in understanding the relative risk levels and guiding efforts to improve workplace safety and reduce the occurrence of injuries.
While certain industries have higher inherent risks, businesses with fewer than 83 employees, on average, would not expect to have a claim each year. Hence, if a business has no claims, it could be due to good performance, effective management, fortunate circumstances, or statistical probabilities. This raises intriguing questions for further exploration, particularly about safety performance.
Safety Performance
One of the key benefits of using SCE in the premium calculation is that it incentivises employers to prioritise workplace safety. By estimating the cost of workers' compensation claims, SCE helps to identify the factors that contribute to workplace injuries and the associated costs.
Employers who invest in workplace safety measures and reduce the risk of workplace injuries are likely to have a lower claims experience factor and pay a lower premium. This creates a financial incentive for employers to prioritise workplace safety and reduce the risk of workplace injuries.
Incentivising workplace safety is an important goal of the workers' compensation scheme, as it helps to reduce the number and severity of workplace injuries. By reducing the number of workplace injuries, employers can improve the health and safety of their workers, reduce the cost of workers' compensation claims, and improve their overall business performance.
Safety performance refers to the evaluation of safety systems and procedures to determine their effectiveness. This analysis involves assessing risk levels, identifying potential hazards, examining safety policies and regulations, and investigating accidents. The main goals are to decrease accidents and incidents, improve the work environment, and enhance employee morale, productivity, and job satisfaction.
Safety performance assessment focuses on various factors, such as employee skills and qualifications, equipment maintenance schedules, safety equipment features, technical standards, and compliance with reporting requirements.
Measuring safety performance and WorkCover performance are essential aspects of workplace safety. WorkCover performance primarily considers the number and cost of claims. In contrast, safety performance measurement evaluates the effectiveness of safety programs, typically through safety incident rates and injury occurrences. Lost Time Injury Frequency Rates (LTIFR) can help compare an organisation's work health and safety performance against industry standards. LTIFR represents the average number of lost-time injuries per industry in Australia annually.
A Lost Time Injury (LTI) is a work-related injury or illness resulting in at least one full day away from work. The Total Recordable Injury Frequency Rate (TRIFR) measures the rate of workplace injuries by summing up fatalities, lost time injuries, medical treatment injuries, and restricted work injuries, then multiplying that number by 1 million hours worked.
Lost Time Injury Frequency Rate (LTIFR)
The LTIFR calculates the number of lost-time injuries per million hours worked in a single financial year, regardless of the injury's severity, as long as it resulted in some time off work. The lost-time injuries per hour worked are typically a very small number.
LTIFRs are useful for evaluating lost productivity, including insufficient injury prevention measures. However, they should not be the sole metric for assessing work health and safety (WHS) performance. You can download the report here: Measuring and reporting on work health and safety | Safe Work Australia
Companies can use the LTIFR calculator to benchmark their industry's occupational health and safety performance. Safe Work Australia benchmarks are based on lost time injuries from workers' compensation claims between 2018-19 and 2020-21, as well as estimates of the number of people employed from the Australian Bureau of Statistics Labour Force Survey between 2018-19 and 2020-21. However, injuries from workers' compensation claims may underestimate all lost time injuries since claims may not be made for minor injuries.
The Lost Time Injury Frequency Rates are also available in the Lost Time Injury Frequency Rate spreadsheet.
LTIs and TRIs are easy to comprehend, and their trends over time are straightforward. However, they may not provide a complete business context. For instance, a consistent number of LTIs may be favourable for a rapidly expanding business but negative for a declining one. This is why they are paired with their frequency rate.
The LTIFR contextualises the LTI within the business situation. One advantage of the LTIFR is that it can be utilised to compare performance against industry standards. Safe Work Australia offers a simple calculator on their website that computes your LTIFR and compares it to your industry.
While injury counts are informative, understanding what is happening necessitates more than that. Data on the type, location, and demographics of injuries is necessary to comprehend what is happening in your workplace and devise ways to improve. For example, based on the data, you may implement strategies to address manual handling issues or improve mental health management.
Other useful statistics include incident and near-miss counts, attendance at safety training and toolbox meetings, and safety audit results. When this data is cross-referenced with other business data, such as production, sales, or rostering data, a comprehensive picture of workplace risks can be obtained. However, all these measures are retrospective.
4.7.?The Impact of Claims on Your WorkCover Premiums
Various factors, including the performance of your claims, determine WorkCover premiums. WorkSafe assesses your premium based on the claims reported over the past three years. These reported claims within a specific period are used to evaluate your performance, influencing your premiums for multiple years. The costs associated with these claims, including both past payments and anticipated future expenses, are assessed at a specific point in time.
Claims and the premium calculation
Claims are utilised three times in the premium calculation process, spanning consecutive financial years. These claims are drawn from a period known as the "claims reporting period," which changes from year to year and typically encompasses the three calendar years preceding the financial year. For instance, the claims reporting period for the 2023/24 financial year would be the three years ending on December 31, 2022, starting from January 1, 2020.
Every claim made under a Victorian employer's WorkSafe Insurance policy within the reporting period is considered in the calculation, regardless of its status (open, closed, rejected, etc.). Claims received after the reporting period and before the premium calculation for the current year are not factored into the calculation until the subsequent year's premium assessment. This is because all claims are given a three-month period for establishing future cost estimates and an additional three months for development and stabilisation. Thus, these claims remain within the six-month window during the premium calculation. However, they will be used in the premium calculations for the following three years.
It is worth noting that certain circumstances may involve the recovery of claim costs from another party, such as through WorkSafe prosecution of a negligent supplier or host employer, or via compensation provided by the Transport Accident Commission in case of injuries involving motor vehicles. These instances impact the overall calculation of claim costs.
Even older claims can have an impact on your premium. If a recovery is made on an older claim, such as through a third-party common law claim, the recovery amount is subtracted from your current claim costs. For example, if your claim costs over the last three years amount to $500,000 but you have a $150,000 recovery from an older claim, your current premium assessment will consider claim costs of $350,000.
Claims play a direct role in determining WorkCover premiums as they reflect the increased financial risk for insurance providers. The number, severity, and costs of claims filed by a business significantly influence its premiums. Higher claim frequency or substantial costs indicate higher risk, leading to adjustments in premium rates. Additionally, the type of claims and the inherent risks associated with specific industries or workplaces can impact premiums. Factors such as workforce size, nature of operations, and industry classification are also considered in calculating premiums and evaluating the overall risk exposure of a business.
Determining total claim costs
In the calculation of employer performance, WorkSafe utilises the total claims cost, which consists of two main components. The first component is the actual claims costs, which represent the cumulative expenses incurred by the claim up to the present time. The second component is the estimated future cost of the claim, determined through the SCE. This estimation considers the potential costs that the claim may incur in the future.
By combining the actual and estimated future costs, each claim is assigned a fair weighting in the determination of employer performance. It ensures that claims are evaluated consistently, regardless of their age, and prevents discrepancies in costs based solely on the claim's age.
It is important to note that claims are used in the employer performance calculation for three consecutive financial years. This multi-year approach provides a more comprehensive assessment of an employer's performance.
By considering both the actual and estimated future costs of claims, WorkSafe can accurately evaluate the impact of claims on employer performance, promoting fairness and consistency in the assessment process.
To effectively manage WorkCover premiums, businesses should prioritise accident prevention, promote workplace safety, and adopt efficient claims management practices. By implementing robust risk management strategies and fostering a safety-focused culture, businesses can reduce the frequency and severity of claims, ultimately exerting a positive influence on their insurance premiums.
4.8.?Impact of Industry Claims on WorkCover Premiums
The industry you operate in also plays a role in determining your WorkCover premium through two key factors. Firstly, WorkSafe assesses industry risk by considering claim costs over the past five years. These costs serve as the basis for determining the industry rate. Secondly, your claim performance is benchmarked against that of your industry peers, resulting in the calculation of your Employer Performance Rate (EPR).
It's important to note that even if your claim performance improves if your industry's performance improves at a faster rate, your premiums may still increase. To effectively reduce your WorkCover premium, it is crucial to enhance your claim performance and advocate for improved claim management practices within your industry.
In summary, understanding the influence of claims on WorkCover premiums is essential. By focusing on improving claim performance, promoting workplace safety, and collaborating with industry peers, businesses can effectively manage their premiums and contribute to a safer and more cost-effective work environment.
4.9.??Your WorkCover Claims Statement
The claims statement reflects the actual cost of claims during a specific period and includes an estimated future claim which is the Statistical Case Estimate (SCE). It is important to note that these claims can potentially lead to increases in the premium, although these increases may not be immediately reflected in the statement.
The claim costs are recorded annually on 31st March to calculate the renewal premium for the subsequent year. It is beneficial to reduce your claim costs before this date to lower your premium.
Claims reporting period
Claims received in the most recent 12-month reporting period will only include weekly payments in the employer claims costs.
Your typical statement will show the following details:
4.10. Capping Factor: How it affects your premium
Unforeseen events can disrupt safety and WorkCover, despite our best efforts. The costs of claims directly impact WorkCover premiums, and a significant increase in costs can lead to higher premiums. The capping policy aims to prevent significant increases in premiums when there are substantial changes in wages, industry averages or claims amounts.
WorkSafe has announced that from the 2023/24 financial year, the capping rule will change and have increased the capping value from 1.3 to 1.75, that is from 30% to 75%.
For the purposes of subclause 14(2) of the Premiums Order, the capping value: a) for an employer that is a small employer within the meaning of subclause 12(5), is 1.75; b) for an employer that is a public sector employer within the meaning of subclause 5(2) but not a small employer within the meaning of subclause 12(5), is 1.75; and c) for any other employer, is 1.75.
When these factors experience significant upward movement, WorkSafe caps the premium increase at 75% to ensure that premiums remain manageable for employers. This means that even if your claims performance rapidly deteriorates and doubles your premium rate, the increase will be limited to 75%. However, a 75% increase can still impose substantial costs on your business. The cap applies to the premium rate, not the dollar amount, so if you expand your workforce or increase wages and benefits, the actual premium amount in dollars may exceed the 75% cap.
If significant improvements are not made, you may face another 75% increase in the following years. Your premium will continue to rise at the capped rate until it reaches an appropriate level.
The capping factor ensures that an employer's premium rate for specific workplaces does not increase by more than the applicable capping value from year to year. This protects employers from sudden and significant increases in their payment obligations. The capping factor, expressed as a percentage, sets a limit on the increase in the premium rate. For example, a capping value of 1.75 caps increases by 75%. The capping factor applies to current risk workplaces and imputed workplaces with unchanged industry classifications.
Capping prevents excessive fluctuations in premium rates. If your business classification remains unchanged and you continue normal operations, your premium rate will not exceed 75%. It's important to note that this capping policy does not apply in cases where the changes are a result of a change in industry classification or awards. In such situations, the premium calculation may be influenced by the reclassification or changes in the industry's risk profile rather than being subject to the capping policy.
The capping factor does not apply to new-risk workplaces that were not operational during the previous premium period. The applicable capping value depends on the nature of the employer. If an employer pays less than the full premium due to the capping factor, the premium rate will gradually increase by a maximum of the applicable capping value per year until the full, uncapped premium is paid.
In summary, claims costs have a direct impact on premium rates. The capping system with a 75% cap helps control the rate of increase in premiums, providing stability and predictability. However, other factors such as workforce size, wages, or industry classification can still influence the actual premium paid. The capping factor limits the increase in the premium rate, protecting businesses from significant payment obligations due to higher claims costs.
See 2023/24 New Gazette Rules: 75% Capping and 1.8% Industry Rate - How Will Your Premium Be Affected?
See Victorian Employers with Small Claim Costs Set to Reap Benefits from 2023-24 Industry Rate Surge!
Fairness and Transparency of the SCE System
5.1. Ensuring Consistency and Accuracy
One of the key benefits of using Statistical Case Estimation (SCE) in the workers' compensation scheme is that it helps to ensure consistency and accuracy in the estimation of claim costs. By using statistical models to estimate the cost of claims, SCE helps to reduce the potential for errors and inconsistencies that can arise from subjective or ad-hoc methods.
SCE also helps to ensure that claims are estimated consistently and accurately across different claims managers and agents. This helps to ensure fairness in the claims management process and reduces the potential for disputes or disagreements between employers, workers, and claims managers.
5.2. Reducing Subjectivity and Bias
Another benefit of using SCE in the workers' compensation scheme is that it helps to reduce the potential for subjectivity and bias in the claims management process. By using data-driven models to estimate the cost of claims, SCE helps to reduce the potential for claims managers to make subjective or biased decisions based on personal opinions or preferences.
SCE also helps to ensure that claims are managed fairly and objectively, regardless of the employer or worker involved. This helps to promote trust and confidence in the workers' compensation scheme and reduces the potential for disputes or disagreements.
5.3. Promoting Financial Sustainability
SCE also plays an important role in promoting the financial sustainability of the workers' compensation scheme. By estimating the cost of claims accurately and consistently, SCE helps to ensure that the scheme is adequately funded and that premiums are set at an appropriate level.
SCE also helps to identify areas where costs can be reduced or managed more effectively. For example, SCE may identify cases where early intervention or rehabilitation services can help to reduce the cost of a claim. By identifying these cases early, claims managers can ensure that the necessary resources and support are in place to manage the claim effectively and reduce the overall cost of the claim.
5.4. Encouraging a Culture of Safety
Finally, SCE can help to encourage a culture of safety in the workplace. By incentivising employers to invest in workplace safety measures and reduce the risk of workplace injuries, SCE helps to promote a safer and healthier work environment.
Employers who prioritise workplace safety are likely to have a lower claims experience factor and pay a lower premium than employers who do not. This creates a financial incentive for employers to invest in workplace safety measures and reduce the risk of workplace injuries.
Encouraging a culture of safety is an important goal of the workers' compensation scheme, as it helps to reduce the number and severity of workplace injuries. By reducing the number of workplace injuries, employers can improve the health and safety of their workers, reduce the cost of workers' compensation claims, and improve their overall business performance.
5.5.?Seeking a Review of Statistical Case Estimation (SCE) under the Workplace Injury Rehabilitation and Compensation Act 2013
Under Division 5 of Part 10 of the Workplace Injury Rehabilitation and Compensation Act 2013, employers have the opportunity to request a review of an estimated future claim cost. This internal premium review process, established within WorkSafe Victoria, aims to provide employers with a fair and efficient resolution for premium disputes.
While agents do not have control over the SCE, employers can still ask for a review. However, it's important to note that the outcome may not always be satisfying since the SCE is determined by a computer algorithm based on statistical data.
Employers have the right to seek a review if they believe there has been an error in recording claim details, such as the worker's date of birth or the nature of the injury. Making corrections to the coding may impact the claim cost, potentially increasing or decreasing it. Furthermore, if the SCE is changed due to coding adjustments, it may trigger a recalculation of the WorkCover premium.
To initiate the review process, employers must apply within 60 days of receiving notification from WorkSafe regarding the estimated future claim cost (your WorkCover Claims Statement) as stated in sub-section 462(1) of the Act. Employers are advised to consult their WorkCover Agent for detailed information on the data or coding input that led to the estimated future claims cost. Providing relevant documentary evidence to support the request for review is crucial in this process.
Challenges and Limitations of SCE
6.1. Data Quality and Availability
One of the key challenges of using Statistical Case Estimation (SCE) in the workers' compensation scheme is the quality and availability of data. SCE relies on accurate and comprehensive data to estimate the cost of workers' compensation claims. However, data quality can be affected by a range of factors, including incomplete or inaccurate data, data entry errors, and inconsistent data collection practices.
Data availability can also be a challenge, particularly for smaller employers or industries with limited claims data. This can make it difficult to develop accurate and reliable statistical models for estimating the cost of claims.
A weakness of the current model is that the predictive ability is relatively weak for certain groups of claims, as indicated by the search results. This is particularly evident in the case of recently reported cases, where there is limited information and a lack of historical claims management data to inform the estimate. The model construction process revealed that not all the relevant data required for accurate modelling is currently available. However, improving data collection practices could potentially enhance the models. By gathering more comprehensive and detailed data, WorkSafe Victoria could potentially improve the accuracy and reliability of the models used for statistical case estimation. This would enable a more robust prediction of claim costs, including those for recently reported cases, and result in more accurate estimates for claims management and insurance premium calculations.
To address these challenges, it is important to ensure that data collection practices are consistent and accurate, and that data quality is regularly monitored and improved. It may also be necessary to develop alternative methods for estimating the cost of claims in industries or for employers with limited claims data.
6.2. Model Assumptions and Uncertainty
Another challenge of using SCE in the workers' compensation scheme is the assumptions and uncertainty associated with statistical models. SCE models are based on a range of assumptions about the factors that contribute to the cost of workers' compensation claims. However, these assumptions may not always hold in practice, leading to errors or inaccuracies in the estimated cost of claims.
There is also uncertainty associated with SCE models, particularly when estimating the cost of future claims. External factors, such as changes in the economy or industry conditions, can affect the cost of claims and make it difficult to accurately predict future costs.
To address these challenges, it is important to regularly review and update SCE models to ensure that they remain accurate and relevant. It may also be necessary to develop alternative methods for estimating the cost of claims in situations where SCE models are not appropriate or reliable.
6.3. External Factors and Changing Conditions
External factors and changing conditions can also pose a challenge to the use of SCE in the workers' compensation scheme. Changes in the economy, industry conditions, or government policies can affect the cost of workers' compensation claims and make it difficult to accurately predict future costs.
To address these challenges, it is important to regularly review and update SCE models to ensure that they remain accurate and relevant. It may also be necessary to develop alternative methods for estimating the cost of claims in situations where SCE models are not appropriate or reliable.
6.4. Balancing Complexity and Usability
Finally, a challenge of using SCE in the workers' compensation scheme is balancing complexity and usability. SCE models can be complex and difficult to understand, particularly for employers or workers who are not familiar with statistical methods.
To address this challenge, it is important to develop user-friendly tools and resources that make it easy for employers and workers to understand and use SCE models. This may include developing user-friendly software or online tools that allow employers to estimate the cost of claims based on their specific circumstances. It may also involve providing training and support to employers and workers to help them understand and use SCE models effectively.
Future Directions and Innovations in SCE
7.1. Advances in Data Collection and Analysis
The first step in SCE is to collect and analyse data on workers' compensation claims. This data includes information on the worker, the injury, the medical treatment received, and the cost of the claim. The data is typically collected by WorkSafe Victoria and its WorkCover Agents or Scheme Agents such as insurance companies and claims management firms. Currently, there are four scheme agents, DXC Integrated Services (Xchanging), Allianz, Gallagher Bassett (GB) and Employers Mutual Limited (EML).
What is a WorkSafe Scheme Agent?
Agents are appointed by WorkSafe as the frontline service delivery arm of the WorkCover scheme and are required to contribute to and share responsibility for, achieving the business objectives of the scheme. Agents, therefore, have a vital role to play in achieving the key goals of WorkSafe and directly contribute to the scheme’s success or failure. The functions of Agents are to:
It's important to note that the scheme agents, sometimes referred to as the "insurer," are not your WorkCover insurer in Victoria. WorkSafe Victoria is the only WorkCover insurer in the state, responsible for setting premiums, managing claims, and paying claim costs. The agents are responsible for managing employers' claims and premiums and are paid a fee by WorkSafe for their services. Their performance is measured by WorkSafe in several ways, including returning injured workers to work, managing the sustainability of the scheme, and providing satisfactory customer service to injured workers and employers.
One of the key areas of future development for Statistical Case Estimation (SCE) in the workers' compensation scheme is advances in data collection and analysis. As data collection methods become more sophisticated and comprehensive, SCE models can become more accurate and reliable.
For example, the use of wearable technology and other sensors in the workplace can provide real-time data on worker movements and activities, which can be used to identify potential hazards and reduce the risk of workplace injuries. This data can also be used to improve SCE models and estimate the cost of workers' compensation claims more accurately.
Advances in data analysis techniques, such as machine learning and artificial intelligence, can also help to improve the accuracy and reliability of SCE models. These techniques can be used to identify patterns and trends in large datasets, which can be used to develop more accurate and reliable models for estimating the cost of workers' compensation claims.
Note: The Agents are not required to place estimates of future costs on individual claims
7.2. Machine Learning and Artificial Intelligence (AI)
Machine learning and artificial intelligence (AI) are also likely to play an increasingly key role in the future of SCE in the workers' compensation scheme. These techniques can be used to develop more accurate and dependable models for estimating the cost of workers' compensation claims and to identify patterns and trends in large datasets.
For example, machine learning algorithms can be used to identify the factors that contribute to the cost of workers' compensation claims, and to develop models that accurately predict the cost of future claims. AI can also be used to automate the claims management process, reducing the potential for errors, and improving the efficiency of the process.
7.3. Integration with Other Risk Management Tools
Another area of future development for SCE in the workers' compensation scheme is integration with other risk management tools. By integrating SCE with other risk management tools, such as safety management systems or risk assessment tools, employers can develop a more comprehensive approach to managing workplace risks.
For example, SCE models can be integrated with safety management systems to identify potential hazards and reduce the risk of workplace injuries. SCE models can also be integrated with risk assessment tools to identify the most effective strategies for managing the cost of workers' compensation claims.
7.4. Enhancing Stakeholder Engagement and Communication
Finally, future developments in SCE in the workers' compensation scheme are likely to focus on enhancing stakeholder engagement and communication. By improving communication and engagement with employers, workers, and other stakeholders, SCE can be used to promote a culture of safety and reduce the risk of workplace injuries.
For example, SCE models can be used to provide employers with real-time feedback on the cost of workers' compensation claims and to identify areas where improvements can be made to reduce the risk of workplace injuries. SCE models can also be used to provide workers with information on the cost of their claims and the support available to them, improving their understanding of the claims management process and reducing the potential for disputes or disagreements.
Recommend reading: 2023/24 WorkSafe Victoria Workers’ Compensation Renewal Guide
Conclusion
Statistical Case Estimation (SCE) is a method used by WorkSafe Victoria to predict the future costs of workers' compensation claims. It involves utilising various factors such as the worker's age, occupation, injury type, medical costs, and claim duration to estimate the expected future costs based on historical data patterns.
The SCE method offers several benefits in managing workers' compensation claims. One of its advantages is the early identification of high-risk claims for effective management. By assigning a case manager to claims predicted to have higher-than-average costs, WorkSafe can ensure proper medical care and rehabilitation services are provided. This approach reduces claim duration and costs while improving the worker's chances of returning to work.
Moreover, SCE helps identify trends and patterns in workers' compensation claims, enabling WorkSafe to make informed policy and regulatory decisions. For instance, if the model predicts an increase in claims for a specific type of injury, WorkSafe can consider implementing new safety regulations or providing additional training to employers in that industry.
Overall, Statistical Case Estimation is an essential tool for WorkSafe Victoria in managing workers' compensation claims and ensuring a sustainable and effective system. The SCE model is regularly updated and reviewed to remain relevant and accurate.
It's important to note that SCE is just one component of the overall system determining workers' compensation premiums. Other factors considered include the industry, workforce size, and claims history, which influences premium calculations. WorkSafe Victoria provides information on premium calculation and offers resources to assist employers in enhancing workplace safety and reducing injuries.
8.1. Summary of Key Findings
Statistical Case Estimation (SCE) is a crucial component of the workers' compensation scheme. Its primary function is to estimate the cost of workers' compensation claims and establish premiums for employers. However, SCE faces several challenges and limitations. These include issues related to data quality and availability, uncertainties arising from model assumptions, the influence of external factors and changing conditions, and the need to balance complexity and usability. Notably, a significant challenge lies in estimating the costs of recently reported cases due to limited available information and a lack of historical claims management data for reference. To address these challenges, future developments in SCE are expected to focus on advancements in data collection and analysis, leveraging machine learning and artificial intelligence techniques, integrating with other risk management tools, and enhancing stakeholder engagement and communication.
8.2. Implications for Policy and Practice
The findings of this analysis have important implications for policy and practice in the workers' compensation scheme. Policymakers and practitioners should prioritise efforts to improve data quality and availability, develop more accurate and reliable SCE models, and integrate SCE with other risk management tools. They should also focus on enhancing stakeholder engagement and communication to promote a culture of safety in the workplace.
8.3. Final Thoughts
Statistical Case Estimation (SCE) plays a crucial role in the workers' compensation scheme by ensuring fairness, transparency, and reduced subjectivity in claims management. It promotes workplace safety and financial sustainability. SCE provides reliable estimates for most individual claims, although extreme cases with significant claim costs may have a higher margin of error. The calculation of experience rating limits the impact of large claims on employer premiums. WorkSafe has made improvements in remuneration declarations, resulting in increased accuracy and reduced underinsurance. Despite its challenges, future developments in data collection, analysis, machine learning, integration with risk management tools, and stakeholder engagement offer promising opportunities to enhance SCE models' accuracy and reliability. Predictive analytics-driven insights enable efficient resource allocation and proactive management of higher-risk claims. Integration of predictive analytics, SCE models, and risk management tools can provide valuable insights for identifying and managing high-risk claims. Overall, the application of predictive analytics and data analysis enhances workers' compensation claims management, improves outcomes, and fosters effective risk management
Employers who believe they have been unfairly penalised by the SCE may consider requesting their SCE be reviewed by WorkSafe.
FACQs
To help clarify the SCE (Statistical Case Estimation) process, WorkSafe has compiled responses to 13 commonly asked questions. Due to LinkedIn's post size limitations, you can download a copy of the FACQs sheet here.
Author: Yon Ta, updated 23 May 2023
Acknowledgements
This guideline incorporates information from diverse sources, including industry leaders, Safe Work Australia, the Actuaries Institute of Australia, and WorkSafe Victoria (Claims Estimate and Premiums, A guide for employers- Your WorkCover insurance and WorkSafe Claims Manual) ensuring comprehensive coverage of relevant insights and expertise. myWorkCover acknowledges the valuable contributions of these sources in shaping the content of this guideline.
Disclaimer:
The information in this post and article is strictly for informational and educational purposes only and should not be construed as legal advice. It is not intended to express specific opinions about specific cases. Before acting on any of the issues discussed in this post, seek additional advice. The information provided should not be relied on for any purpose other than to assist you in understanding how Workers’ Compensation insurance works. It is for illustrative purposes only and My WorkCover Solutions Pty Ltd does not accept liability for any loss or damage suffered by any person resulting in any way from the use of or reliance on, the information provided. The information in this article is believed to be correct as of the date of publication. However, changes in the applicable laws may have an impact on the accuracy of the material. This article contains general information that is not tailored to any specific person’s situation. This publication may contain information that relates to the regulation of Workers’ Compensation insurance in your State or Territory. To ensure you comply with your legal obligations, we would recommend you refer to the appropriate legislation as currently in force in the State or Territory you conduct your business. You can find up-to-date legislation by visiting each state’s WorkCover Authority website, alternatively, contact myWorkCover for updated information.