Ideally, workplace injuries and claims are prevented. But what happens after someone is injured and chooses to lodge a WorkCover claim? Most employers presume there would be some impact on their future premiums but find difficulty in understanding how extensive this impact will be and for how long it will continue. This article answers the most common questions employers ask me about their claims costs.
You WorkCover premium is determined using a complicated formula. But the three main factors every employer must be aware of are:
- Rateable remuneration
- Industry classification
- Claims costs
Your rateable remuneration is an indicator of how labour-intensive your business is. If you pay double the wages of a comparable business, you would expect to pay double the premium.
Your industry classification determines how risky your work is. High-risk work attracts a high rate, perhaps 5%. Low-risk work would attract a lower rate, perhaps 0.5%.
In calculating an employer’s premium, we start by multiplying the rateable remuneration by the industry rate. Then, if you have had costly claims, you may pay more than the resulting amount. Or, if you’ve had few or no claims, you might pay less than this industry average amount.
Read on to find out which employers are affected by fluctuating claims costs, which claims are included and how these costs determine the premium you’ll ultimately pay.
Which employers’ premiums are affected by claims costs?
If you pay more than $200,000 rateable remuneration per year, your claims history will be used to determine your premium. Below this threshold, you’ll receive the average rate for your industry.
Do claims costs change over time?
Your claims costs can go up and down.
‘How can claims costs go down?’ you might ask. ‘You can’t “un-pay” something!’
I’ll come back to that in a moment. For now, what matters most is what happens on or close to 31 March. It’s around this date that WorkSafe takes your ‘claims snapshot’. Your claims costs, as they appear in the snapshot, will determine your premium. So, while your claims costs can fluctuate throughout the year, the figures taken on the snapshot date will be set in stone and used in the subsequent premium calculation when issued the following July.
Do we need to pay back the claims costs?
Your total claims costs may be $500,000 on the snapshot date. This doesn’t mean you’re now liable to pay back this amount. But that is the figure used to determine if you will pay more or less than the average for your industry.
Which claims are included in the snapshot?
The snapshot only includes ‘standard claims’ that fall within the ‘premium-sensitive’ period. A standard claim is one that has exceeded the excess. It’s similar to how your car insurance might require you to pay the first $500 for repairs on a car insurance claim. WorkSafe has a similar threshold.
Employers must pay the first $707 of medical expenses and the first 10 days of weekly compensation payments. If a claim remains below both of these thresholds, it is designated a ‘minor claim’. Once the claim exceeds one or both thresholds, it becomes a ‘standard claim’. Minor claims have no impact on your premium; standard claims do.
In determining which claims affect your premium, WorkSafe uses either the date of lodgement or the date on which the claim was upgraded from minor to standard. The 2018/19 premiums that were issued in July 2018 took the claims snapshot around 31 March 2018. It included claims lodged or made standard between 1 January 2015 and 30 June 2017, the premium-sensitive period. Whatever costs were attached to the claims lodged during that period on that date were the costs used in determining the 2018/19 premium. Looking at the date range of the premium-sensitive period, you’ll see that a claim impacts your premium for up to three consecutive years.
What amounts are included in our claims costs?
Your claims costs comprise the actual costs paid by your WorkSafe agent and a statistical case estimate (SCE). Let’s unpack these elements.
The costs paid on a claim are broadly defined as ‘compensation paid’ and ‘non-compensation paid’. ‘Compensation paid’ represents payments made to an injured worker to replace their lost wages. ‘Non-compensation paid’ refers to everything else paid by the agent: doctors’ bills, medical treatment, lump-sum payments, investigations and so on. The common theme here is that these costs represent actual dollars paid for something.
The SCE is also represented as a dollar amount, but it has not been paid to anyone. It’s simply an estimate of potential future costs regarding the claim. A sophisticated computer algorithm generates the SCE. No human being I’m aware of can change it, at least not without escalating to the highest echelons of WorkSafe.
The SCE draws on information from all the WorkCover claims in the system. With over 25,000 standard claims every year, there’s a lot of experience to draw on. Many factors that impact the SCE are set in stone from the outset, including the worker’s gender, postcode and type of injury. But other variables depend on what’s happening and changing on the claim over time. Is the worker currently receiving compensation payments? Are any legal proceedings underway? Has there been a lump-sum payout? Such factors can increase or decrease the SCE, which is why I said earlier that your claims costs can go up or down.
How can we reduce our claims costs?
When workers remain on the job, receiving only a modest amount of treatment, the SCE will trend downwards. It recognises that things are going well, so it’s unlikely there will be significant future costs associated with the claim. But if a worker is off work and getting paid compensation at the maximum amount, the SCE will skyrocket. Compensation payments are the number-one driver of SCEs. Surgery, legal activity and lump-sum payments also trigger large increases. When payments and other events on a claim indicate things aren’t going well, the SCE balloons to a higher figure, budgeting for a potentially lengthy and costly claim.
The actual compensation and non-compensation costs can only ever increase. But the SCE fluctuates, sometimes wildly. What’s frustrating for employers is that the SCE is almost always out of proportion with what you would consider an accurate estimate of future costs. What makes matters worse is knowing that when WorkSafe takes your claims snapshot, they include the actual costs paid plus the SCE. To be clear, WorkSafe’s estimate of future costs impacts your premium just as much as the actual costs do.
I’ve sat across from a CEO who was speculating as to why a claim with $10,000 paid had an SCE of $100,000. The worker in question had full clearance, no ongoing treatment and a low risk of a recurrence of the injury. But when the premium was calculated, this wasn’t a $10,000 claim – it was a $110,000 claim! Having dealt with so many claims, I can explain the logic the system applies to come up with this figure, but I’ll let you decide if you think it’s actually logical.
SCEs are a significant pain-point for employers. You might try contacting your agent to demand that the SCE is reviewed or changed to a more sensible figure. But the only response I’ve ever heard is: ‘The SCE is generated by the system. It’s based on real-world data and it is not possible to change it’.
It’s not all doom and gloom, though. Remember that when you manage your claims well (or you have no claims), you keep your costs and your SCEs down. This correlates with premium savings. Having no costs and no SCEs is the ideal.
Put in the simplest terms, high claims costs create high premiums. Low or no claims costs lead to low premiums. With a reasonable claims history, you can expect to pay less than the average for your industry.