Performance pricing

About 5000 New Zealand employers could be experience rated for possible discounts in their ACC premiums from April next year.

At the recent Safeguard National Health and Safety conference Dr Keith McLea, general manager ACC product, pricing and distribution, said the goal was to have experience rating and no claim discounts available from April 1 next year.

McLea said ACC was proposing to apply experience rating to larger employers who paid more than $10,000 in ACC levies, although the corporation was still not sure that was the correct figure. “We will be talking to employers and employer groups to see if we are on the right path there.”

At that level about 5,000 of the 550,000 employers in New Zealand would be experience rated, and about 230,000 employers would have the opportunity of no-claim discounts.

Experience rating would not apply to the 136 accredited employers, who represent about 20 percent of all employees in New Zealand, because they paid their claims themselves.

McLea said ACC would assess the experience of the employer over the past three years, looking at injury rates, and using two criteria. A claim would be counted if an injury cost more than $500 on medical expenses, or if the employee had one day or more off work after the first five days.

He described experience rating as a method of adjusting levy rates based on employers’ claim experience under a performance pricing regime. “It allows for individual employers to be rewarded for doing better in H&S. While it represented a move away from a collective responsibility to an individual one, the right balance still had to be struck, he said.

McLea said the difference between a levy paid by a good risk employer should me noticeably lower than for a bad risk employer. He hoped that the discounts, possibly up to 20 percent, were priced in a way that acted as an incentive to encourage good employer H&S performance, and better rehabilitation.

He said most employers thought experience rating was a good thing because they expected to be in for a discount. But McLea stressed that for those who got a discount, others would get a loading. “The reality is if we are giving someone a discount we will be looking for a loading somewhere else.”

McLea said in a pilot scheme, available from next month, employers would be able to go online to view their claim record and ensure it was correct.

He said ACC was meanwhile looking at risk sharing options where an employer might for instance pick up the first three months of the injured employee’s wages in return for a reduced premium. It was also looking at offering reduced premiums where an employer paid the first $5000 of a claim.

Such options would likely not be implemented for a couple of years.

At the start of his presentation McLea had explained, by way of a proviso, that what he said now would probably only be “about two thirds right”, and the aim was to give the audience a feeling for where ACC was at.

He said ACC Minister Nick Smith had asked for the corporation to become much more insurance focused. While not losing its focus on social insurance, there were aspects where ACC could be run more like an insurance business, and staff had been had hired out of the insurance industry.

McLea said ACC had run focus groups on the proposed changes which were not being made in isolation. ACC had consulted with Australians and Canadians, and looked at some US schemes to find out what did and didn’t work. Overseas literature indicated that incentive programmes prompted the “right behaviour”, and reduced injuries and the amount of time spent off work. ACC would need to make experience rating work, and reduce perverse incentives, he said.

This story appeared in Safeguard Update newsletter of 28 June 2010.

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