SA: Changes to Levy System Commence

From July 1, WorkCover SA introduced its new Experience Rating System, which calculates employer levies, now called “premiums”, based on their size and performance against their industry’s risk and individual claims experience.

WorkCover predicts that changes to its levy system will help push down the scheme’s costs sufficiently to allow it eventually to reduce the average levy rate, which remains the highest in the nation.

The new regime will target medium and large employers, which make up the least of businesses in the scheme, however, because of their workforce size, lodge the most claims.

Small employers, which historically have a low record of claims, will continue to pay a base rate calculated on their payroll and industry risk.

WorkCover SA chief executive Rob Thomson said the change was “one piece of the puzzle” for improving the scheme’s financial performance. It also needed better outcomes from its claims agents (for which winning tenders will be announced in coming months).

“Hopefully, this change, together with other changes that have been made, will actually result in the levy rate being reduced at some point. I would hope that’s within the next couple of years,” he said.

The WorkCover board announced in March the average levy rate paid by employers would remain unchanged, at 2.75 per cent of payroll, for 2012-13. It was cut from 3 per cent in 2010-11, where it had been since 2003-04. That roughly was double the average levy rate paid interstate, with 1.66 per cent in NSW, 1.34 in Victoria, 1.30 for Queensland and 1.49 in WA.

Last year, the scheme also reported its second highest unfunded liability, at $ 1.17 billion, which the board attributed to economic factors.

Mr Thomson said the scheme’s anticipated long-term returns remained low. This may continue to affect the level of its liability.

“The scheme is still getting appropriate and good (immediate) investment returns; the impact that we’re suffering is the (bottomed out) yield curve,” Mr Thomson said. “The areas that we have under our own control, we are seeing an improvement but the things that are outside our control that are affecting everybody . . . there is likely to be some deterioration. It’s very hard to judge at this point.”

He said only 9 per cent, about 5000, employers would be affected by the move to an experience rating system.

The new scheme, which also operates in NSW, has been met with some resistance from small employer groups, such as the Motor Trade Association, because it does not provide incentives for improvement, as it does for medium and large employers.

Mr Thomson said the aim was to change the behaviour of the more frequent claimants and it was not practical to implement incentives for smaller employers as they rarely make claims.

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